Swiss bank UBS is warning that gold's appeal as an inflation hedge and as an alternative to the U.S. dollar is at risk of becoming "obsolete" after the Federal Reserve last week began preparing markets for a wind-down of its stimulus program, possibly by the end of the year.
The most explicit signal yet from Federal Reserve Chairman Ben Bernanke on Wednesday that the U.S. central bank was considering scaling back its $85 billion per month of Treasurys and mortgage-backed debt purchases sparked a 5 percent rout in the bullion market.
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Gold's latest sell-off, its worst since the 2008 global financial crisis, prompted a number of investment banks to cut their 3-month and full-year forecasts sharply for the precious metal. Many now believe normalization of the Federal Reserve policy will remove a major pillar of support that has driven gold prices to a record high near $1,920 in September 2011.