Gold Drops 2.5% after Bernanke Hints at Easing

Gold prices fell Tuesday, along with other safe-haven investments, after the head of the Federal Reserve said the central bank was ready to do more to support economic activity.

Federal Reserve Chairman Ben Bernanke told a Congressional committee the U.S. central bank was prepared to take further action as appropriate to promote a stronger economic recovery in a context of price stability.

The Nasdaq Composite Index, which had been in negative territory before Bernanke's comments, turned positive - at one point up a full percentage point -- after beginning the day sharply lower on fears of a Greek sovereign debt default.

The other major U.S. stocks indexes pared losses that, in the case of the S&P 500, had brought equities into bear market territory.

The interest rate on the 10-year Treasury rose to 1.82 percent and the dollar, according to the ICE US Dollar Index, was down 0.06 percent.

Losses for gold, U.S. Treasuries and the dollar -- safe-haven investments that attract investors when business activity is down -- accelerated. The euro, meanwhile, reversed course and posted gains.

Bernanke could be the catalyst for a returned focus to domestic issues, Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co., in San Francisco, told Reuters.

The prospect of the Fed lowering interest rates or increasing the money supply typically results in higher stock prices because such central bank actions are seen as stimulating business activity. At the same time, such actions tend to lower prices for securities like U.S. Treasuries and gold that do well even when -- or especially when -- business activity declines. Thus, in the short term at least, Bernanke's hint that the Fed may soon act to stimulate business activity was positive for stocks and negative for so-called safe-haven investments.

Before Bernanke's comments, the dominant focus for global financial markets had been the impending Greek default and the damage such a prospect is already having on European banks and their shareholders.

Europe is the center point of all of this,'' Paul Zemsky, head of asset allocation at ING Investment Management, told The Associated Press. The big fear in the market is that company earnings are not sustainable and that Europe's problems are going to spread into the U.S. banking system.''

Technical analysts found cause for hope that gold might be ready to begin an ascent.

Technically gold is sitting right on the 50 percent Fibonacci retracement from the January low of $1,314, said Timothy Kelly, managing director, IBTRADE. The charts show a bottom pattern at the 50 percent retracement, and if this holds at the weekly, we could see a test of the highs.

Gold for December delivery fell $41.70 to settle at $1,616, a 2.52 percent decline. Gold for immediate delivery declined $12.80 to $1,609.93.

Silver for December delivery fell $0.96 to settle at $29.84, a 3.05 percent decline. Silver for immediate delivery was off 26 cents to $29.59.