NEW YORK (Dow Jones)--Gold futures fell 3% Wednesday, building on the previous day's losses as traders continued to digest the Federal Reserve's brighter economic outlook.
The most actively traded contract, for April delivery, was recently down $51, or 3%, at $1,643.20 a troy ounce on the Comex division of the New York Mercantile Exchange.
The Fed's policy setting statement Tuesday continued to make waves, as hopes of further monetary stimulus dimmed in the face of the bank's upbeat comments about the U.S. labor market.
"The statement had clearly a positive tone regarding the economy, triggering another heavy round of sales of gold, which rapidly fell onto the defensive," said James Steel, precious metals analyst with HSBC Securities (USA) Inc., in a note.
Gold prices had roared higher during the Fed's second quantitative easing program, as the metal is considered a store of value and a hedge against the falling value of paper currencies. Moreover, hopes of a third round of so-called QE had stoked investor interest in the yellow metal in recent months.
While gold prices gold prices are swiftly shedding any premium ascribed to the likelihood of a third round of monetary stimulus, they "may be nearing price levels that will encourage emerging-market demand, which should help stabilize prices," said HSBC's Steel.
TD Securities said that gold futures faced additional selling pressure from technical indicators. "Gold is now back below the 200 day moving average support level of $1682.00 and looks increasingly more likely to take a look at the $1600.00 level," it said.
A move below the 200-day moving average is considered bearish for the market, and often signals a shift in price trends, further pressuring gold prices lower.
A stronger dollar, which gained against the euro, also weighed on gold. The euro was recently trading at $1.3062, down from $1.3083 late Tuesday in New York.
Prices of dollar-denominated gold futures tend to fall as the U.S. dollar strengthens against other currencies because the contracts appear more expensive for foreign investors, damping their interest in the precious metal.
