Gold Falls Hard: Era of Cheap Money Over?

Gold fell hard Wednesday, as markets digested the idea that the era of cheap money might be coming to an end, again.

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While Tuesday’s release of the Fed minutes from its March meeting were being literally ripped apart word by word, traders reacted instantly, dumping risk assets in a selling spree that continued Wednesday.

This is the second time in a month that gold has sold off in response to signals from the Fed that more easing is not guaranteed.

“No QE3, not going to be inflationary, stock market reacting, energy reacting and so are the metals”, says Kevin Grady, Phoenix Futures and Options Founder. Grady tracks the trend followers on the trading floor of the Comex gold pit, a division of the New York Mercantile Exchange.

“What you are starting to get in gold—and also silver—are some shorts coming into the market,” Grady says. Grady is watching support at the $1605 level in gold.

Open interest in gold futures fell Tuesday by about 1500 contracts to 407,000 contracts, indicating that some investors are also getting out of long positions.

Gold futures prices fell as much as 3.2 percent Wednesday morning to $1,618.38, its lowest level since Jan. 10, 2012 and below its 50-day moving average.

Gold equities are falling along with its underlying asset. Newmont Mining traded at a new 52-week low today, falling over 4 percent. Back in 2007, Newmont was one of the mining companies that eliminated gold hedges, creating a tighter link to the underlying commodity.

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