Gold Prices Tank

Source:

"Bernanke's good news was a sledgehammer for gold."

Gold prices were tanking Friday as central banks in emerging markets took steps to tame inflation and Federal Reserve Chairman Ben Bernanke raised his U.S. growth forecast.

Gold for February delivery was falling $28.50 to $1,358.50/oz. at the Comex division of the New York Mercantile Exchange. The gold price Friday has traded as high as $1,377.80 and as low as $1,356.10.

The next area of support for gold is $1,330$1,315; after that the 200-day average of $1,265 an ounce is the next key technical level.

The U.S. dollar index was down 0.09% to $79.12 while the euro was down 0.02% to $1.33 vs. the dollar. The spot gold price Friday was holding up better but still down $16.30, according to Kitco's gold index.

Gold prices were extending post-market losses from Thursday after Bernanke said he expected the U.S. economy to grow between 3% and 4% in 2011, much better than expected. The positive news was a sledgehammer for gold.

If you read between the lines, this could mean that the Fed could stop or alter its $600 billion bond-buying program before it runs out in June which would limit the flow of extra money in the system.

Another scarier option for gold would be the possibility that the Fed could hike key interest rates sometime this year. Other emerging-market countries have already been doing this to curb inflation, but developed nations have refrained because of high unemployment.

David Morgan, founder of Silver-Investor.com, says that gold prices will react negatively when interest rates are hiked severely or are very high. Small increases or modest rates won't be too much of a headwind for gold prices.

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