12-5-13 12:03 PM EST | Email Article

By Myra P. Saefong and Barbara Kollmeyer, MarketWatch


SAN FRANCISCO (MarketWatch) -- Gold futures fell 2% on Thursday, set to return much of the gains they scored in the previous session as U.S. data pointed to a stronger-than-expected economic recovery.


February gold (GCG4) dropped $25.50, or 2%, to $1,221.70 an ounce on the Comex division of the New York Mercantile Exchange. March silver (SIH4) fell 41 cents, or 2%, to $19.43 an ounce.


Gold prices had bounced back on Wednesday to recoup much of what they had lost in the first two sessions of the week as traders had no shortage of economic data to assess.


"Today's quick reversal in gold suggests that yesterday's bounce was a technical rebound from oversold conditions and short covering," said Colin Cieszynski, senior market analyst at CMC Markets -- "in short, a typical bear-market rally."


On Thursday, the government released the first of two updates to third-quarter GDP, which came in much stronger than expected, while unemployment benefits fell by 23,000 to 298,000.


"The drip-drip stories about possible taper is acting like water torture on the gold prices -- incessant and corrosive to confidence," said Ross Norman, chief executive officer at Sharps Pixley, in emailed comments. "However, if and when done, the impact, we believe, be marginal."


Traders have been considering economic data for clues on when the U.S. Federal Reserve will ease back on its bond-buying program, which has helped support gold prices. Upbeat economic data point to the likelihood that the central bank will decide to taper the program sooner rather than later.


"The potential that central banks could be starting to swing back to neutral from easing has shored up support for paper money and weighed on hard money," said Cieszynski. "The battle between renewed interest in commodities versus increased tapering speculation appears to be the main drivers in the gold market recently."


The all-important hits on Friday. If the data show greater than 175,000 additional jobs, Jeffrey Wright, managing director at H.C. Wainwright LLC said he expects the "selloff in gold to continue on Friday and into next week."


Meanwhile, Walter de Wet of Standard Bank Group said he believes gold action is telling us that "a disappointing data print may merely see more selling into any rally that the gold price may offer post Friday's data release." As such, he stands ready to react to any uptick by paring his stake, he wrote in a note Wednesday.


Overseas, the European Central Bank and the Bank of England left monetary policy unchanged, as expected. Read live blog of ECB President Mario Draghi's news conference.


Elsewhere in metals trading, January platinum (PLF4) fell $19.90, or 1.5%, to $1,356.10 an ounce, while March palladium (PAH4) was up 35 cents to $729.60 an ounce.


March high-grade copper (HGH4) lost 3 cents, or 0.9%, to $3.22 a pound.


Metals mining shares headed lower too. The Philadelphia Gold and Silver Index (XAU) lost 1.7%, with the index trading more than 50% lower year to date.


Shares of Barrick Gold Corp. (ABX) traded flat at last check, but it's fallen 4.9% week to date. The miner said late Wednesday that Peter Munk will retire as chairman and step down from the Board of Directors. Co-Chairman John Thornton will become chairman.


Thornton reportedly said Wednesday that he would consider a return to gold hedges. Many mining companies, including Barrick, had abandoned the strategy of hedging exposure to the price of gold during the financial crisis when prices for gold were rallying. The hedges allowed companies to lock in prices for much of their production using forward sales, but eliminating them allowed full leverage to the rising gold price.


The news "has traders scared that mining companies will start dumping gold and thus today's drop is justified," said Yves Lamoureux, president of Lamoureux & Co., a market advisory firm based on behavioral economics. "We don't think it matters in the short term and we are favorable [on] gold, but it is a big problem ahead for 2014 if you are a gold bull."


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-Myra P. Saefong; 415-439-6400; AskNewswires@dowjones.com


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(END) Dow Jones Newswires

12-05-13 1203ET

Copyright (c) 2013 Dow Jones & Company, Inc.
Copyright 2014 MarketWatch
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