The Dollar Gold Price fell to a 3-month low Wednesday morning, hitting $1622 per ounce ahead of US trading, while stocks and commodities also fell and the Dollar extended gains afteryesterday's publication of the latest Federal Reserve policy meeting minutes.
Silver Prices fell to $31.76 per ounce – a drop of 1.7% for the week so far, but still just above last week's low.
On Tuesday, the Gold Price fell 2% in less than an hour following the publication of minutes from last month's Federal Open Market Committee meeting.
At the same time, the Dollar jumped 1% against the Euro, after the FOMC minutes appeared to suggest Fed policymakers are less inclined towards a third round of quantitative easing, with the Fed's staff economists revising their inflation forecasts upwards.
"I would have to see some pretty severe [economic] circumstances before I endorse for another round of quantitative easing," said Federal Reserve Bank of Atlanta president Dennis Lockhart, who is voting FOMC member this year, speaking on Wednesday.
"The outlook is positive enough that I am not sure I see the need for it.
"The Fed has distanced itself from QE3," says James Steel, chief commodity analyst at HSBC .
One FOMC member, Richmond Fed president Jeffrey Lacker, voted against last month's decision to leave the policy rate on hold between zero and 0.25%.
"In [Lacker's] view," say the minutes, "with inflation close to the Committee's objective of 2%, the economy expanding at a moderate pace, and downside risks somewhat diminished, the federal funds rate will most likely need to rise considerably sooner to prevent the emergence of inflationary pressures."
Gold has fallen sharply on other occasions this year following Fed policy communications. March 13, the day this latest FOMC decision was announced, saw the spot market Gold Price drop 2% from the day's high, while on February 29, gold fell nearly $100 an ounce after Fed chairman Ben Bernanke told Congress he saw potential inflationary pressures from rising gasoline prices.
The FOMC minutes are "in line with what Bernanke said in February" says HSBC's Steel.
"But nonetheless it's enough to reduce the near-term bullish momentum."
"Gold really does need the physical markets to step in right now," adds a note from Swiss investment bank UBS.
"So far the response has been limited. The jewelers' strike in India persists, overnight demand from that region was poor and the Chinese market is closed, but returning tomorrow."
"I wouldn't be surprised if we push lower towards $1600," says Standard Bank commodities strategist Walter de Wet.
"That is what we think is a floor and we are unlikely to fall substantially below that."
De Wet adds that real interest rates – the nominal rate minus inflation – are unlikely to turn positive in 2012.
"We still think globally that monetary supply will continue to grow...these things are positive for gold."
Here in Europe, the European Central Bank kept its policy rate on hold at 1% Wednesday.
Elsewhere in Europe, yields on benchmark 10-Year Spanish government bonds hit 3-month highs on Wednesday, after Spain failed to raise as much as hoped from a bond auction this morning – the first since the government unveiled its budget last week.
Yields on shorter-dated Spanish bonds have fallen significantly since December last year, when the ECB announced its three year longer term refinancing operations, at which European banks have since borrowed more than €1 trillion.
"It's clear the downtrend in yields on sovereign bonds was triggered by the LTROs," said Christian Schulz, a former economist at the ECB now with Germany's Berenberg Bank, speaking before the ECB's press conference on Wednesday.
"If the ECB were to say 'Well, actually now we're thinking about exiting this strategy', that would cause concern over whether these low interest rates are sustainable."
Over in China, the world's second-largest source of private demand for Buying Gold, the China Securities Regulatory Commission announced Tuesday that it is raising the limit on investment in Chinese markets by foreign fund managers from $30 billion to $80 billion.
Chinese authorities have also more than tripled the amount of Renminbi foreigners can raise in Hong Kong to invest on China's mainland, the Financial Times reports.
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