GOLD FALLS BELOW $1,800 AS RETREAT GAINS STEAM / THE WALL STREET JOURNAL ( VERY HIGHLY RECOMMENDED READING )

MARKETS

AUGUST 24, 2011, 12:39 P.M. ET

Gold Falls Below $1,800 as Retreat Gains Steam

By TATYANA SHUMSKY

Bloomberg News

NEW YORK— Gold tumbled past $1,800, with losses accelerating as investors moved to lock in gains made in recent weeks. The most actively traded contract, for December delivery, touched a low of $1,763.80 and was recently down $87.70, or 4.7%, at $1,773.60 a troy ounce on the Comex division of the New York Mercantile Exchange. Thinly traded August-delivery gold fell $89.10, or 4.8%, at $1,769.20 a troy ounce.


Gold's dramatic retreat comes on the heels of its first decline in six days, after futures touched a record $1,917.90 a troy ounce.


The rapid rally has been a cause of concern for market watchers in recent days, with some analysts saying a pullback was overdue as gold's parabolic rise appeared overdone.
"Gold has run up $400 since the middle of July and for a long time it didn't even trade above that level," said Sterling Smith, an analyst at Country Hedging.

Investors are also eagerly awaiting a speech Friday by Federal Reserve Chairman Ben Bernanke, who is due to address an economic symposium in Jackson Hole, Wyo. Gold traders will be looking for hints of further monetary stimulus as last year Mr. Bernanke used the event to float the idea of a second round of quantitative easing, or QE2, which was formally launched a few months later.

Gold prices are likely to fare well in the absence of such hints, as many market participants fear the economy will slip into recession without help from the Fed.
However, further monetary stimulus would be "the more positive scenario" for gold prices, as additional liquidity tends to weaken the dollar and raise inflation expectations, said analysts at BNP Paribas. A weaker dollar makes dollar-denominated gold seem cheaper to buyers using foreign currencies, while domestic buyers who worry about inflation would want to stock up on what is widely considered an inflation hedge and a store of value.

BNP Paribas also raised its gold price forecast to average $1,635 a troy ounce this year, from a previous forecast of $1,510. The bank expects gold prices to average $2,080 a troy ounce in 2012, up from a previous forecast of $1,600. The analysts also introduced their 2013 gold price outlook, saying prices will average $2,200 a troy ounce.

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