By Myra P. Saefong and Simon Kennedy, MarketWatch
SAN FRANCISCO (MarketWatch) — Gold fell sharply Tuesday, after comments from Federal Reserve Chairman Ben Bernanke painted a grim picture for the U.S. economy and job growth, dulling the metal’s appeal as an inflation hedge, and as steep losses in global markets prompted investors to sell gold to raise cash.
Bernanke said Tuesday that a close reading of recent economic data doesn’t show any hint of improvement ahead for the weak U.S. labor market.
“Recent indicators, including new claims for unemployment insurance and surveys of hiring plans, point to the likelihood of more sluggish job growth in the period ahead,” Bernanke said in testimony prepared for the Joint Economic Committee of Congress. Read more about Bernanke’s statement.
Gold is “really an inflation hedge and the third-world currency,” said Springer, who’s also author of “Facing Goliath: How to Triumph in the Dangerous Market Ahead.”
“Slower growth means no inflation or worse deflation, and a lack of future stimulus, which debases the economy, means less dilution in the currency and less need for the third currency,” he explained.
Need for cash
Earlier strength in the U.S. dollar had dulled gold’s shine but the greenback has since weakened. The U.S. dollar index DXY -0.27% was last at 79.251, down from 79.561 late Monday, after a high of 79.838.
“Investors sometimes want only the dollar as a safe haven, usually when selloffs in other markets lead investors to sell gold to raise cash,” said Brien Lundin, editor of Gold Newsletter. “That may be in play to some extent today.”
“Even as the dollar pulled back, however, [Bernanke’s] dour comments on the prospects for the economy and job growth, and his opinion that inflation has begun to moderate, led gold to weaken further,” he said.
Despite that, Lundin believes the “bailout efforts in Europe will lead to significant new money creation — their version of QE — and will be very bullish for gold.”
“Investors will begin to realize this as the situation with Greece deteriorates and as ever-more-dramatic bailout plans are implemented,” he said. “In the meantime, however, all markets will be extremely volatile during the transition.”
The moves in metals came as global stock markets dropped sharply again across Europe and Asia after Jean-Claude Juncker, prime minister of Luxembourg and president of the Eurogroup of finance ministers, said late Monday that a decision on whether to hand Greece the next tranche of its bailout would be delayed to allow inspectors in Athens to continue their work. Also see Europe Markets.
U.S. stocks traded broadly lower Tuesday, with the Dow Jones Industrial Average DJIA -0.78% down 0.5% to 10,603.01, on track for a third-straight session of losses.
Over the previous two sessions, fears over the worsening European economy had added to the move out of riskier assets and into less risky assets such as gold.
Goldman Sachs said it’s now forecasting that the euro zone will slip into a “mild recession” in the fourth quarter of 2011 and first quarter of 2012.
But gold’s bounce back “did not end yesterday as investors were seen to still be considering the precious metal a safety haven and buying in to protect themselves from the market limbo caused by a looming Greek default,” Simon Denham, CEO of Capital Spreads, said, in an email.
Other metals suffered from broad losses along with gold.
December copper HG1Z -1.21% fell 3 cents to $3.12 a pound. December palladium PA1Z -3.92% traded at $566 an ounce, down $27.75 and January platinum PL2F -2.58% lost $41.10 to $1,474.50 an ounce.
