Gold Falls After Data Backs Stimulus Exit Fears

Gold extended losses into the European session on Wednesday, falling to its lowest in nearly three years after a string of positive economic data reinforced expectations the Federal Reserve will begin to taper back its monetary stimulus, lifting stocks and the U.S. dollar.

As of (09:30 GMT+3), gold for immediate delivery declined 1.97% or 25.17 points on Wednesday to trade at $ 1,252.79 an ounce after opening at $1,277.12, having earlier hit a high of $1,27765, and a low of $1,244.30.

Since last week gold has lost 10 percent and plunged for a seventh session out of eight, after Fed chairman Ben Bernanke signaled that economic growth was strong enough to begin tapering its $85 billion monthly bond-buying this year should the economy continue to improve.

Strong economic data released on Tuesday has prompted the Fed`s decision to wind down its stimulus program later this year and end purchases by mid-2014. Gold prices have been supported in recent years by central bank steps to support their economies.

Moving to other metals:

- Silver fell 3.31% to trade around $ 18.98

- Platinum lost 1.80% to $ 1,326.65

- Palladium edged 1.56% lower to $ 658.70

Reports showed U.S. consumer confidence jumped in June to its highest level in more than five years, while sales of new U.S. single-family homes rose to their highest level in nearly five years in May.

The figures were credited with lifting the dollar, which in turn appeared to drive down gold where a stronger greenback can be a negative factor for commodities priced in dollars since it makes them more expensive to buyers using other currencies.

The USDIX dollar index is currently trading around 82.79 after opening at 82.93, having so far hit a high of 82.95 and a low of 82.78.

Fears of a credit crunch in China`s banking system eased on Wednesday after the People’s Bank of China officials said the central bank will guide interest rates to a ”reasonable range.” That helped stem losses across most asset classes.

Gold has been hurt by continued downgrades with Credit Suisse the latest to cut its gold and silver price forecasts.

Goldman Sachs also cut its year-end 2013 gold price forecast to $1,300 an ounce from $1,435. While, HSBC lowered its 2013 gold price forecast to $1,396 from $1,542 an ounce and its 2014 price to $1,435 from $1,600.

Holdings in the SPDR Gold Trust, the world`s largest gold-backed exchange-traded fund, fell 16.23 tons to 969.50 tons on Tuesday, to their lowest since February 2009.