Gold plunged more than 5 percent on Thursday to a 2 and a half year low after the Federal Reserve outlined its stimulus withdrawal plan. Fed chief Ben Bernanke said yesterday that the central bank could start trimming quantitative easing by the end of 2013 and finish it completely by middle 2014.

Gold

The Fed’s comments over stimulus withdrawal prompted heavy selling in yellow metal. The yellow metal plummeted to $1,287.60 per ounce, its lowest level since September 2010. The yellow metal later pared losses to trade at $1,292.40, a decline of 5.94 percent over the previous session. A strong U.S. economic recovery, strengthening dollar and rising bond yields hampered the yellow metal’s appeal as a safe haven.

It was the fourth consecutive session of decline in gold prices. The yellow metal had already fallen 15 percent in mid-April. Kitco said that the Fed’s move has inflicted serious damage in gold and silver markets, indicating that there could be further downside pressure. Comex August gold futures fell $70.10 to $1,303.90 per ounce. Spot gold traded down $46.40 to $1,305.25.

Analysts Cut Gold Price Forecasts

Analysts have also reduced their gold price forecasts. UBS AG (NYSE:UBS) cut its one-month price target from $1,425 to $1,250, while lowering the three-month forecast from $1,500 to $1,350. UBS AG (NYSE:UBS) analyst Joni Teves said that the current market environment looks challenging for gold. Gold has declined 23 percent this year so far.

However, Deutsche Bank (NYSE:DB) analysts believe that demand for gold coins and jewelry will remain firm as the prices decline. Falling gold prices could prompt price sensitive buyers in emerging markets to buy more gold. But Joni Tevis of UBS AG (NYSE:UBS) argues that the demand for physical gold will be weak going forward. She said hefty gold purchasing in April could prompt buyers to stay on the sidelines.

Gold Brings Other Metals Down

Falling gold pulled other metals down as well. ICE Brent Crude retreated $2 to $104.12 per barrel, while Nymex plunged $2.13 to $96.11 per barrel. Base metals faced a double punch from the Federal Reserve stimulus withdrawal as well as disappointing Chinese manufacturing data. HSBC flash PMI for China declined to 48.3 in June, compared to the consensus estimate of 49.1.