Gold plunges to lowest level in almost 3 years

The price of gold plunged to the lowest level in almost three years Wednesday as traders anticipate lower inflation risk as the Federal Reserve dials back its economic stimulus program.

Gold for August delivery dropped $45.30, or 3.6 percent, to settle at $1,229.80 an ounce, the lowest since August 2010. Silver plunged 93.9 cents, or 4.8 percent, to $18.587 an ounce.

Gold tends to do well when interest rates are low and when traders fear inflation. Traders often hold gold as an alternative store of value when they think the U.S. currency will weaken.

Those conditions were in place when the Fed’s bond-buying program was in full swing, but news last week that the program could be curtailed later this year and ended outright next year caused gold prices to fall sharply.

The dollar has been rising over the past week after the Fed laid out its possible exit from its $85 billion a month bond-buying program. The Fed stressed that it would only wind down the program if the U.S. economy continued to improve.

An index measuring the dollar against six other currencies has risen 2.7 percent since the Fed announced its plans. Gold has plunged 8.9 percent since then. The dollar and the price of gold tend to move in opposite directions.