Gold extends losses on Fed stimulus speculation

NEW YORK (July 25)   Gold continued in its biggest slump in almost three weeks on Thursday, after rebounding for a short period of time earlier in the day, amid skyrocketing US housing data published on Wednesday that stirred concerns that US fiscal stimulus will soon end as the world's number one economy recovers.

Gold futures dropped 0.57% to $1,312.10 an ounce at the time of writing, while silver mirrored the trend and fell 0.73% to below the $20 threshold at $19.880 an ounce.

Spot gold slumped 0.50% to $1,312.41 an ounce, extending losses from the previous session

Slump on housing

The US Commerce Department reported its fresh monthly new home sales data on Wednesday, offering well above-forecast figures as the sales in the country's widely watched reality market soared 8.3% to 497,000 units, the highest level since May 2008. Markets were expecting the reading to show 484,000 sold units.

In reaction, gold prices slid 1.7%, the most since July 5, from four-day high of $1,348.65 an ounce.

Better-than-expected data from US housing, signaling the faster pace of US economic recovery, led investors to speculation that the US Federal Reserve (Fed) will taper its $85-billion stimulus.

12-year rise

Bullion is generally considered as the best existing inflation and currency hedge, much appreciated in uncertain times of unprecedented quantitative easing (QE) in its various variants all over the world.

An exit from the stimulus would deal a heavy blow to gold, as it has slumped 21% this year alone on speculation that the Fed will start to wind down its program this summer. Therefore, the metal is set to end its 12-year period of constant rise.

The US dollar index, measuring the relative strength of the greenback against a basket of six major currencies, was seen flat on Thursday, at 82.2940 as of the time of writing. Precious metals usually react reversely to the index, as a weaker greenback boosts demand for gold, silver and platinum as a form of value.