NEW YORK (TheStreet) -- Gold prices were plummeting Thursday after the Federal Reserve's decision to scale back its economic stimulus program triggered investor selling on the bet that inflation concerns will ebb.
Gold for February delivery at the COMEX division of the New York Mercantile Exchange was tumbling $40.20 to $1,194.80 an ounce. The gold price traded as high as $1,226 and as low as $1,191.60 an ounce, while the spot price was falling $23.61, or 1.9%.
"Gold sellers [are] disappointed with tapering, Senate accord on a 2 year budget, higher 10-year rates, very strong stocks -- due to all this are causing gold prices to test recent lows," George Gero, precious metals strategist at RBC Capital Markets, wrote in a note on Thursday. "While next year may prove more promising as inflation may rear its head, for now a strong dollar will keep buyers of gold on the sidelines."
Gold witnessed a gargantuan rally to near $1,900 in September 2011 from $800 at the end of 2008 -- a more than 130% gain -- on the back of significant fiscal stimulus and multiple rounds of monetary stimulus.
Many investors view gold as an asset hedge against inflation in fiat currencies, and since much of the gold trade is U.S. dollar-denominated, many market participants made bets that stimulus would devalue the U.S. currency. Hedge fund billionaire John Paulson is one of the more familiar gold-bulls who grabbed huge positions in the precious metal in the years following the financial crisis -- he has since told clients he would no longer personally invest in the space.