Gold Slumps Most in Two Weeks After Fed Expands Operation Twist

Gold posted the biggest drop in almost two weeks after the Federal Reserve said it would extend its Operation Twist program, while refraining from announcing additional debt purchases.

The central bank will expand its program to replace short- term bonds with longer-term debt by $267 billion through the end of the year in a bid to reduce unemployment and protect expansion, policy makers said today in a statement. The Fed bought $2.3 trillion in assets through June 2011 in two rounds known as quantitative easing.

“The market is disappointed, and we are seeing some sell off,” Bart Melek, the Toronto-based head of commodity strategy at TD Securities Inc., said in a telephone interview. “The market had begun unwinding in the past few sessions since expectations were mixed, so I think the sell off will not be a very huge one.”

Gold futures for August delivery fell 0.5 percent to settle at $1,615.80 an ounce on the Comex in New York, the biggest slump since June 7.

Prices extended losses in after-hours electronic trading, falling 1 percent to $1,607 at 3:50 p.m. in New York.

Fed Chairman Ben S. Bernanke said access to credit remains a “major issue” without specifying additional stimulative measures during a press conference after the close of floor trading.

“If we don’t see continued improvement in the labor market, we’ll be prepared to take additional steps if appropriate,” Bernanke said at a news conference.

“The Fed leaving the doors open without actually going through them has disappointed the market,” said Michael Gayed, the chief investment strategist at New York-based Pension Partners LLC, which advises on more than $150 million in assets.

To contact the reporter on this story: Debarati Roy in New York at droy5@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net