Precious metals investors taking big knocks adjusting to life without QE3

The fall was triggered by disappointment over US Federal Reserve minutes release yesterday that showed a third round of monetary policy easing – so-called quantitative easing or QE3 – is not likely to happen and that its policy of zero interest rates may be coming to an end sooner than previously thought.

Silver for May delivery also tanked with the precious metal losing 6.7%, a drop of $2.24 to $31.02 an ounce in early afternoon trade, the low for the day.

Palladium for June delivery fell more than 4% or $27 to $632 an ounce, while July platinum contracts sank 3.75% or $62 to $1,598 an ounce.

If the Fed stops flooding markets with cheap money, Gold’s allure as a storer of wealth and an inflation hedge is diminished. Gold was also hurt by a stronger dollar.

MarketWatch quotes strategists at the National Australia Bank: “The impact of a higher U.S. dollar on the gold price will be particularly pronounced given that a large majority of gold is invested in the U.S. In the medium-to-longer term, we expect more certainty surrounding the European sovereign debt situation to emerge, while a relatively stronger U.S. dollar and a return to fundamentals should also help to lower prices.”

Reuters quotes Richard Hastings, macro strategist at investment bank Global Hunter Securities as saying “If we were to break below $1,550, more significant doubts might emerge about gold’s capability to regaining longer term price trends to the upside.”

Gold is down from its 2012 high of $1,790 an ounce hit at the end of February and an all-time high of just above $1,900 an ounce reached in September last year. Silver hit a high of $48 an ounce in April last year.