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Gold Erases Gains as Fear Returns to Markets

January 4, 2013 at 0:36 by Vladimir Vyun

Gold was rallying on the first trading day of this year, extending its advance to three consecutive sessions. Yet it completely failed on the second day, wiping out the whole rally. Traders were bullish at first as it looked like the threat of the fiscal cliff has gone away, but then they quickly turned their attention to the problem with the debt ceiling. Fear returned to the market and sent the precious metal down.

The Federal Reserve released the minutes of its last policy meeting, which said:

In considering the outlook for the labor market and the broader economy, a few members expressed the view that ongoing asset purchases would likely be warranted until about the end of 2013, while a few others emphasized the need for considerable policy accommodation but did not state a specific time frame or total for purchases. Several others thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013, citing concerns about financial stability or the size of the balance sheet. One member viewed any additional purchases as unwarranted.

The time-frame for accommodative policy was completely different than in the previous minutes, which promised that asset purchases would likely to continue through 2015. Quantitative easing was a major bullish factor for gold and the possibility of its ending hit the metal very hard.

Spot price for gold dropped from $1,688.32 to $1,656.23 per troy ounce. Silver price slumped from $31.11 to $29.96 per ounce.

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