Gold Extends Drop From 3-Month High as Dollar Strengthens

London (July 7)  Gold extended a decline from a three-month high as the outlook for higher borrowing costs in the U.S. strengthened the dollar. Silver also dropped.

Gold ended a 12-year rally last year on expectations the Federal Reserve would reduce stimulus as the economy improved. International Monetary Fund Managing Director Christine Lagarde said yesterday U.S. growth is set to accelerate in the coming months even as she signaled a cut in the bank’s global forecast. The greenback reached a one-week high against the euro, while the Bloomberg Dollar Spot Index was little changed.

“No figures out today mean that prices will probably continue to meander sideways,” David Govett, head of precious metals at Marex Spectron Group in London, wrote today in a note. “We have now well-and-truly entered the summer doldrums and wouldn’t hold out a lot of hope for fireworks in the near future. I still feel that the market has done enough on the upside for the time being.”

Bullion for immediate delivery fell 0.5 percent to $1,314.38 an ounce at 10:01 a.m. in London, according to Bloomberg generic pricing. The metal climbed to $1,332.33 on July 1, the highest price since March 24, and completed a fifth week of gains last week. Gold for August delivery dropped 0.4 percent to $1,314.90 an ounce on the Comex in New York. Futures trading volumes were 19 percent lower than the average for the past 100 days for the time of day, according to data compiled by Bloomberg.

U.S. markets were closed July 4 for the Independence Day holiday, and transactions will be booked today for settlement purposes.

Landesbank Baden-Wuerttemberg, the most-accurate currency forecaster tracked by Bloomberg, said that the U.S. central bank may increase rates as soon as the first quarter of 2015. The Fed will on July 9 release minutes of its June 17-18 meeting, when it trimmed monthly asset purchases for a fifth time.

Borrowing Costs

Richmond Fed President Jeffrey Lacker and his Minneapolis counterpart Narayana Kocherlakota speak tomorrow after James Bullard, St. Louis Fed president, said last month the U.S. is improving enough to withstand a rise in short-term interest rates next year. Prospects for higher borrowing costs may support the U.S. currency, and gold typically moves inversely to the greenback.

The World Gold Council is hosting an industry meeting today in London to discuss possible changes to the century-old London gold fixing benchmark, used by mining companies to central banks to trade and value the metal.

Palladium for immediate delivery traded little changed at $865.10 an ounce. On July 4 the metal climbed for a 10th day to $867.15, the highest price since February 2001. Spot silver dropped 1 percent to $20.9521 an ounce, while platinum was little changed at $1,499.44 an ounce.

Source: Bloomberg