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Gold falls sharply, closes below $1,600 an ounce

Published on NewsOK Modified: February 20, 2013 at 4:30 pm •  Published: February 20, 2013

Gold prices fell sharply Wednesday following the latest positive signs for the U.S. economy and signs of dissent at the Federal Reserve about continuing its bond purchases.

Gold for April delivery dropped $26.20, or 1.6 percent, to $1,578 an ounce, its first close below $1,600 an ounce since August.

News that the pace of home construction last month was the third-highest since 2008 was the latest indication that the U.S. housing market is recovering. That has helped diminish the appeal of gold as a defensive investment.

Also Wednesday the Federal Reserve released minutes of its latest policy meeting revealing that some policymakers are doubtful about continuing the Fed's bond purchases. They said the program could cause inflation, unsettle financial markets or cause the Fed to absorb losses once it begins selling its investments. The Fed has said it plans to keep buying $85 billion in bonds each month until the job market improves.

If the Fed ends or curtails its program earlier than anticipated, it would likely result in higher U.S. interest rates and a stronger dollar. One of the reasons investors buy gold is to have an alternative to holding dollars. As a result, gold often falls when traders think the dollar will strengthen, and vice versa.

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