Gold falls on Fed Chair Yellen's comments

San Francisco (May 7)  Gold extended its early-day decline only slightly on remarks seen on balance as favorable about the economy, analysts said. Some of the price weakness was also attributed toward seemingly conciliatory comments from Russian President Vladimir Putin on the Ukrainian crisis.

As of 11:09 a.m. EDT, gold for June delivery was $11.70, or 0.9%, lower to $1,296.90 per ounce on the Comex division of the New York Mercantile Exchange. It was trading at $1,301.20 a minute before Yellen began speaking and subsequently hit a low for the day of $1,293. July silver was down 24.5 cents, or 1.3%, to $19.40 an ounce.

June gold is back below its 200-day moving average of $1,302.10. Prices have oscillated above and below this widely followed average since late March.

Gold had a softer tone going into the testimony. Dave Meger, director of metals trading with Vision Financial Markets, attributed this to three things – a partial recovery in the U.S. dollar after recent weakness, news that the China Gold Association said demand in the country for bars fell nearly 44% year-on-year in the first quarter, and investors perhaps fretful that Yellen would in fact be upbeat. This prompted some selling in the form of profit-taking ahead of her appearance, Meger said.

Gold tends to slip on strong economic data and upbeat Fed assessments – on ideas that interest rates will rise sooner than previously expected – and vice-versa.

Yellen is delivering economic testimony to the Joint Economic Committee of Congress. She is scheduled to make a similar appearance Thursday before the U.S. Senate budget committee at 9:30 a.m. EDT.

In her prepared remarks, she said recent economic data have shown improvement and the second quarter is on track for “solid growth” after a weak first quarter that coincided with a harsh winter. She looks for 2014 economic growth to top the 1.9% rate from 2013. However, she repeated the view that while the labor market is improving, it remains far from satisfactory, and said a “high degree of monetary accommodation” remains warranted.

She did say there are risks to the economy, including any spillover effect from geopolitical tensions, emerging-market financial stress and the housing market.

“Basically, there is some concern here that her relatively positive outlook or view on the U.S. economy is going to translate into a quicker rate move in the future,” Meger said.

However, he described her comments as “not hugely upbeat” but “slightly upbeat.”

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