Demand for gold may weaken further should central banks seek to curb their unprecedented money printing as economies strengthen. Federal Reserve Chairman Ben S. Bernanke said last week that the pace of bond purchases could be reduced if the jobless rate keeps dropping. Bullion rose 70 percent as the Fed bought $2.3 trillion of debt in two rounds of quantitative easing through June 2011. Prices are up 1.8 percent this week on speculation the Fed will maintain stimulus.
Central Banks
A reduction in central bank stimulus would support a rally in the dollar, Citigroup’s Wilson said. Gold and the greenback are inversely correlated, implying lower bullion prices should that happen. Their 30-week correlation coefficient is at -0.54, a level last reached in December, and from as high as 0.26 in April. A figure of -1 means the two move opposite to each other.
Investors’ frayed faith in gold is also extending to silver, ETP holdings of which are contracting for a second consecutive month. Investors own 18,965 tons, valued at $13.9 billion, data compiled by Bloomberg show.
The premium charged by wholesale dealers for the Mint’s American Eagle silver coins fell to 13 percent in May, from 25 percent in April, according to Williamsville, New York-based coin dealer Richard Nachbar.