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Gold Settles 1% Lower

Tatyana Shumsky
Wall Street Journal
August 2, 2012

Gold futures fell on disappointment that the European Central Bank kept its monetary policy unchanged at a closely watched meeting.

The most actively traded contract, for December delivery, fell $16.60, or 1%, to settle at $1,590.70 per troy ounce on the Comex division of the New York Mercantile Exchange.

The ECB dashed hopes of new easy money measures from the central bank, with the governing committee opting to leave interest rates unchanged and announcing no new stimulus measures.

"General disappointment in today's pronouncements lowered expectations of quick action and possible inflationary moves for gold investors," said George Gero, a senior vice president with RBC Capital Markets Global Futures, in an email.

In a news conference following the meeting, ECB President Mario Draghi said euro-zone inflation is likely to decline further in 2012 and be below 2% in 2013.

Gold is a hedge against inflation, and tends to see less investor interest during periods of low inflation.

However, Mr. Draghi said the central bank may consider undertaking further "non-standard measures," which fanned hopes of liquidity measures down the road.

"Gold is anticipating that we're still going to see some kind of easing coming," said Joe Kobel, a commodity broker with RJO Futures.

Some market watchers, however, are unmoved in their belief that gold prices are primed for a rebound.

"Gold will continue testing the $1600 barrier until it surprises to the upside," said Peter Schiff, chief executive of Euro Pacific Precious Metals, a bullion dealer based in New York, in a note to clients.

Mr. Schiff added that gold's rebound could be spurred on by either a third round of quantitative easing in the U.S., a calmer outlook for Europe or a shock to the Treasury market.

Gold and Treasurys are both considered haven assets and tend to compete for investor attention.