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Wednesday, 06/20/2012 12:16:26 PM

Wednesday, June 20, 2012 12:16:26 PM

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Comex Gold 1603.30, Silver 28.35 Shrinks Back to $1,600 Ahead of FOMC
Jun 20, 2012 By Tatyana Shumsky

-- Comex August gold down 1.1% to $1,605.70/oz
-- Traders brace for upcoming Fed policy statement, Bernanke press conference
-- Investors worry gold will sink if no policy changes are announced

NEW YORK--Gold futures retreated to $1,600 on fears that the Federal Reserve will keep its policy unchanged and that Fed Chairman Ben Bernanke will avoid hints of more easing.

The most actively traded contract, for August delivery, was recently down $17.50, or 1.1%, at $1,605.70 per troy ounce on the Comex division of the New York Mercantile Exchange.

Investor attention is firmly focused on the Fed, as markets await the Federal Open Market Committee's monetary policy statement due out at 12:30 p.m. EDT, followed by revised economic forecasts and Mr. Bernanke's press conference.

Gold futures dropped back to the psychologically important $1,600 level as fears that the bank won't hint at any change in policy gripped markets.

"The market has already priced in a change," so if policy is left unchanged gold prices are set to fall amid disappointment, said George Gero, senior vice president with RBC Capital Markets Global Futures.

"Most people think there's going to be some kind of stimulus down the road, whether it's now or later," Mr. Gero added.

Analysts at Standard Bank forecast that the Fed will most likely extend Operation Twist, in which the central bank sells short-term bonds and uses the funds to buy long-term securities with the aim of lowering long-term interest rates and encouraging borrowing and investment.

"We could see a slight pull-back in gold and other precious metals," they said in a report, adding that "if the Fed should announce more aggressive monetary accommodation, the complex will no doubt rally."

Gold gained little support from the weaker dollar, which slipped against the euro. The euro was recently trading at $1.2700, up from $1.2662 earlier. Gold futures are traded in dollars and become less expensive for investors who use other currencies when the dollar eases.

Elsewhere, lower prices lured Chinese traders back to the physical gold bullion market overnight, though overall demand for physical gold remains "fragile," said analysts at Barclays in a note to clients.

Write to Tatyana Shumsky at
(END) Dow Jones Newswires
06-20-12 1012ET
Copyright (c) 2012 Dow Jones & Company, Inc.

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