Can a continued reaction from the Fed be why gold is down today - a week after the FOMC meeting?
Both gold and silver tumbled to near three-year lows in overnight trading.
"Actually, I think we've got multiple factors at work here," Money Morning resources expert Peter Krauth told us when we asked him to explain the 4.13% ($52.80) fall in gold prices today.
"First, it's an ongoing reaction to the Fed," said Krauth. Last week Team Bernanke sent stocks and gold tumbling on the idea that the Fed's quantitative easing measures could taper by year end.
"Second, rising interest rates create a bit more opportunity cost for owning gold," continued Krauth. "Third, we're in summer now, a seasonally weak period for gold, and finally, there's ongoing apathy for gold as official inflation remains tame."
Official government-reported inflation is 1.7%.... Although you probably would argue otherwise if you've been grocery shopping recently. That's still below the Fed's 2% target.
Why Gold is Down Today: GDP Hits Metals
Also weighing on precious metals Wednesday were government revisions to first quarter gross domestic product.
The broadest measure of economic activity, GDP rose a meager 1.8% annual pace in the first three months of the year, down sharply from the 2.4% pace reported by the Commerce Department in May. Economists had expected the government's final estimates to remain at 2.4%
The government revises GDP numbers several times. In fact, this was the third time the numbers were revised. But such a stark revision was a surprise.
"This was certainly unexpected and, I believe rare," Jennifer Lee, senior economics with BMO Capital Markets told CNNMoney.
The most dramatic change was a cut in the government's estimates of consumer spending growth, which dipped from 3.4% to 2.6%. Consumer spending accounts for more than 70% of the economy.
The fresh numbers paint a picture of a slowing U.S. economy as the second half of 2013 approaches. Most forecasters project the economy to turn in a sluggish 1.7% annual growth rate in Q2, according to consulting firm Moody's Analytics.
China's credit crunch has also reduced demand for physical gold.
Other commodities like silver, copper, platinum and palladium have also taken a hit on worries about a Chinese economic slowdown.
In addition, gold demand in India took a hit following an additional duty slapped on gold imports by the country's government in attempts to reduce its trade deficit.
Gold's current drop has led to the yellow metal giving back nearly 55% of the $1,240 gain it made off its financial crisis lows. Gold is down 4.8% over the past three days, 12% this month, 27% this year and 35% off 2011's record high.
With gold down today, the yellow metal is on pace for a record quarterly decline of 23%.
Gold officially entered bear market territory in April when pronounced declines moved the yellow metal a good way off its all-time high of $1,921.15 hit in September 2011.
With gold down today, many investors long for the days when gold prices were soaring by double digits. The good news - there's another investment that's mirroring those gains. In fact, it's so promising that our Global Resources Expert Peter Krauth called it the "New Gold." Here's the story.
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Credit: Money Morning - Only the News You Can Profit From http://moneymorning.com/2013/06/26/why-gold-is-down-today/
