January 07, 2013 at 11:49 AM EST
With Fed Considering Ending QE, Could Gold Prices Fall More?

Gold prices have been falling pretty steadily for the past four and a half months. If the Federal Reserve puts an end to quantitative easing soon, gold could enter a real bear market.

Following the fed minutes which were released last Thursday, the price of gold futures on the Comex division of the New York Mercantile Exchange for February declined by -25.70, or 1.5% to $1,648.90 on Friday. Gold futures slipped -0.4% for the week on that move. However, this decline is just an extension to the continuous decline of gold, which has been slipping for over four months.

The price declined Friday when several members of the Federal Reserve voted to end stimulus money sooner than previously expected. The Fed has been using stimulus money for quantitative easing, which has helped gold prices surge from just $800 per ounce in late 2008 to hit all-time highs of about $1,900 per ounce in mid-2011.

The Fed news also hit gold companies hard, including Newmont Mining Corp (NEM), which has declined -4% since Thursday, Barrick Gold Corporation (ABX), which took a -3.5% on its stock price, and AngloGold Ashanti Limited (AU) which is now down -3.6% from Thursday.

The minutes left many investors and analysts disappointed after high expectations for the metal. With the decline, there is a good possibility that many investors will continue to sell their gold.

Accordingly, several analysts have cut estimates for gold in 2013. Credit Suisse and HSBC both lowered their estimates by -5% following the news.

The Bottom Line

Although gold has been slumping for months, the week of the fed minutes release resulted in the biggest weekly gold price decline since 2004. The news resulted some investors panicking to sell their gold, and analysts to cut their estimates. Will gold post another comeback soon, or will the fed’s new tighter money policy and the resolution of the fiscal cliff keep pushing yellow metal prices lower? Only time will tell.

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