Gold's Bearish Knife Is White Hot
NEW YORK ( TheStreet) -- Somewhere in the world, Warren Buffett is smiling.
The investment he recently called out as being the No. 1 speculative bubble enemy -- gold -- is cratering on Tuesday's Federal Reserve commentary that another round of quantitative easing is likely only if the economic recovery falls off track.
Gold futures trading on the Chicago Mercantile Exchange were selling off by $47.90 in the afternoon, and touched a level not seen since early January, at an intraday low of $1,613. Gold spot prices were recently down $26.80 and had fallen as low as $1,611, according to Kitco.com.
The action in gold was not a surprise to metals traders, who expected that at least in the near-term, the Fed had killed the gold trade in its commentary on Tuesday that another round of quantitative easing would not be merited unless the economy stalls.
"Fed policy has essentially been the fuel pushing this bull market. It's been about liquidity and that has an impact on all commodities' prices," said Phillip Silverman of trading firm Kingsview Capital, who noted the big spike in the dollar on Tuesday. The big move up in the dollar can only result in a downward pressure on gold.
The U.S. dollar continued on an upward trajectory, rising near 0.4% to $79.76 in trading on Wednesday.
Jan Nadler, senior metals analyst at Kitco, called the Fed commentary the "SCUD" that hit the gold market and added that most investors are beginning to realize that way too much had been whipped up premium-wise in metals based on a never-ending (Fed accommodation) story.
"The best thing to hope for is that $1,600 proves not to be made of butter. The bearish knife is white-hot right about now. Darn Fed! Can't it just give, and give, and give???" Nadler wrote in a report on Wednesday morning.
In fact, many market pundits continue to believe that the Fed will give, just later rather than sooner, taking the position that Tuesday's commentary merely suggests that QE3 won't occur in June when Operation Twist ends, but will be enacted later in the year by the Fed if the economy gets sluggish, and the economists, as well as market traders, expect that will be the case.
"Leading economic indicators suggest a slowing later in the year and the hope that Bernanke will move on QE3 could put a floor under valuations," Kingsview's Silverman said. However, he added, "the market doesn't see QE3 coming in the April meeting, so if it's still on the table it's been pushed out and right now this market is so short-term focused, wanting to know when it's getting the next shot of adrenaline."