Gold Declines to Seven-Month Low on U.S. Rate Outlook
New York (Sept 11) Gold futures fell to the lowest since January on speculation that the Federal Reserve will raise U.S. interest rates sooner than forecast, crimping demand for a hedge against inflation. Silver slumped to a 14-month low.
More than $5.1 billion has been erased from the value of exchange-traded products backed by gold since June 30. Money mangers cut their bullish wagers on the metal for three straight weeks, while open interest in New York futures and options is close to the lowest in five years.
Gold has dropped 11 percent from this year’s high after the U.S. economy gained traction and the dollar strengthened, cutting demand for the metal as an alternative asset. Demand for a haven declined after tensions in Ukraine and the Middle East eased. Global ETP holdings fell in four of the past five months.
“It’s hard to get excited about gold in this current environment when the dollar is rising and the political tensions have eased,” Scott Gardner, who helps manage $450 million at Verdmont Capital SA in Panama City, said in a telephone interview. “People don’t want gold when rates are expected to rise, while inflation has remained muted.”
Gold futures for December delivery fell 0.5 percent to settle at $1,239 an ounce at 1:38 p.m. on the Comex in New York. Earlier, the price touched $1,235.30, the lowest for a most-active contract since Jan. 23.
On March 17, the metal reached $1,392.60, the highest since Sept. 9, 2013.
Gold tumbled 28 percent last year, the most in three decades. The Fed reduced monthly bond purchases to $25 billion on July 30, the sixth cut of $10 billion since November. Goldman Sachs Group Inc. analysts have forecast prices will touch $1,050 in 12 months as the U.S. economy improves.
Traders raised bets that the Fed will increase rates in mid-2015. The central bank next meets on Sept. 16-17. Gold jumped 70 percent from December 2008 to June 2011 as the Fed bought debt and held borrowing costs at an all-time low to bolster the economy.
Prospects for higher rates in the U.S. and the European Central Bank’s announcement of additional stimulus sent the dollar to a 14-month high yesterday against a basket of 10 currencies.
“The strong wall of dollar strength and prospects of a rate hike are pushing gold lower,” Ira Epstein, the president of his namesake division at the Linn Group Inc. in Chicago, said in a telephone interview. “The outlook for gold is very weak in the absence of an escalation of violence” in Ukraine or the Gaza Strip, he said.
Silver futures for December delivery dropped 1.7 percent to $18.599 an ounce. The price touched $18.57, the lowest since June 28, 2013.
Gold and silver trading were 22 percent above the average in the past 100 days, according to data compiled by Bloomberg.
On the New York Mercantile Exchange, platinum futures for October delivery fell 0.7 percent to $1,370.70 an ounce. The price touched $1,368.10, the lowest since Feb. 4.
Palladium futures for December delivery declined 1.9 percent to $833.20 an ounce. The metal touched $830.60, the lowest since June 26.