Updated June 20, 2013, 10:01 a.m. ET
Gold Plunges Below $1,300

By TATYANA SHUMSKY
Gold tumbled 6.4% Thursday, falling below $1,300 an ounce for the first time in nearly three years, as traders scrambled to sell their gold before the Federal Reserve potentially curtails its bond-buying program.
Gold for June delivery settled down $87.70 an ounce at $1,285.90 on the Comex division of the New York Mercantile Exchange. That was its lowest settle since Sept. 21, 2010.

News that the Fed will start reducing liquidity later this year rattled markets, with U.S. Treasury and other bond yields rising, stock markets and commodity prices tumbling and the dollar heading sharply higher. Martin Essex looks at the wave of risk aversion. Photo: AP


Fed Chairman Ben Bernanke outlined Wednesday the potential path for paring back the bank's $85-billion-a-month asset-purchasing program. Mr. Bernanke said that as long as economic growth remained on track the central bank would begin reducing its asset purchases later this year and could end the stimulus measure by the middle of 2014.
The eventual siphoning off of the added liquidity from the U.S. capital markets will raise interest rates and damp inflation, adding further pressure on gold prices.
"There was no doubt in my mind when I left the office last night that what the Fed said was incredibly bearish for gold," said Graham Leighton, a precious-metals broker with Marex Spectron.
The Fed's successive liquidity programs, instituted to repair an economy damaged by the 2008 financial crisis, fueled gold's run to $1,900 an ounce. At the time, many investors feared the unconventional stimulus measures would erode the value of the dollar and spark higher inflation, and sought gold as a safeguard against these risks.
"Gold was being viewed as the safe haven amid turmoil in the euro zone, concern about economic growth in the Asian markets, and rising debt in the U.S.," said Dave Meger, director of metals trading with Vision Financial Markets.
As those worries eased, gold gave up much of its gains. This year, the price of the precious metal is down 23%.
Now, as the Fed prepares to remove these buttresses after 15 consecutive quarters of U.S. economic expansion, investors say there are fewer reasons to hold gold. Past threats, like the euro-zone debt crisis and higher U.S. inflation, appear to be tamed.
In addition, a record-breaking rally in U.S. equities and higher bond yields are luring away investors with greater returns on their money.
Gold bullion held by exchange-traded funds, which trade and store the physical metal on investors' behalf, has slumped 26% to 33.3 million ounces from a record of nearly 45 million ounces in December 2012, according to Marex Spectron.
"Over the past 10 years, we've had this huge buildup in gold holdings not only in the retail sector, but also in the institutional sector, and people are just getting better returns elsewhere right now," Mr. Leighton said. "Gold is an asset that costs you to hold it," because you lose out on gains elsewhere, he added.
Gold struggles to compete with interest-bearing assets during times of rising interest rates as, unlike shares or bonds, the metal doesn't pay interest or dividends.
Gold losses reverberated across the rest of the precious-metals complex.
Silver prices followed gold's lead, plunging below $20 an ounce for the first time in 32 months. Silver for June delivery lost $1.80 a troy ounce, or 8.3%, to $19.8220 on the Comex.
Silver and gold tend to move in the same direction as both precious metals are considered a currency alternative and an inflation hedge. However, silver is known to be more volatile, leading to more pronounced gains and losses.
Meanwhile, platinum futures entered a bear market, falling more than 20% from their Feb. 6 highs of $1,736.50 an ounce. A bear market is defined as a roughly 20% drop off a recent high. Platinum for July delivery declined $60.10, or 4.2%, to $1,363.80 a troy ounce on the Nymex.
Write to Tatyana Shumsky at tatyana.shumsky@dowjones.com

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