Gold Walloped (Along With Pretty Much Everything Else)

Photograph by Lyle Leduc

Markets of all kinds are selling off on Thursday after Chairman Ben Bernanke’s latest comments on the Federal Reserve’s stimulus policies, and investors in gold are faring among the worst. The metal is down almost 5 percent, with Bernanke making the case for slowing the central bank’s easy-money policies by the end of the year if the economy improves.

High inflation, which would make gold a more appealing asset, is still nowhere to be seen, despite the Fed’s unprecedented bond-buying—and similar programs in Japan and other countries. Gold exchange-traded funds, which let retail investors buy and sell the commodity easily, have lost more than 20 percent this year. Silver is taking even more of a beating, down more than 7 percent today and off by 34 percent since the beginning of January.

For the most devoted gold bugs, the losses have been brutal. Hedge fund manager John Paulson’s gold fund lost 13 percent in May, bringing his decline to 54 percent on the year, Bloomberg News reported earlier in June. Hedge funds and large speculators have cut their bets on gold by 4 percent, as of June 11.

Bernanke spooked investors worldwide on May 22, when he told Congress that the Fed might taper its $85 billion a month in Treasury and mortgage debt sooner than was expected. His press conference yesterday was his first on-the-record chance to provide further information about how the central bank might finesse the transition out of the extraordinary stimulus program.

Though Bernanke chose his words ultra-carefully, markets flipped out, to use a technical term. Every major stock market tracked by Bloomberg is in the red today, and the yield on 10-year Treasury notes rose to the highest since August 2011. Emerging markets continued their slide, a rout that has deepened since early May.

Bullion fell as much as 6.5 percent. “The markets are definitely not prepared to wait until the tapering actually begins,” Ole Hansen, head of commodity strategy at Saxo Bank A/S, told Bloomberg News. “The combination of Fed tapering, a spike in nominal yields, and a stronger dollar has put gold under some considerable pressure.” That’s putting it mildly.

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