Gold Holds Drop From 3-Month High on U.S. Rates Outlook

London (July 8)  Gold held a retreat from a three-month high as investors weighed the timing of U.S. interest-rate increases and escalating tensions in the Middle East. Palladium reached the highest price since February 2001.

The Federal Reserve, which has kept its benchmark lending rate near zero percent since December 2008, tomorrow will release minutes of its June 17-18 meeting, when it reduced monthly asset purchases for a fifth time. Israel struck 50 targets in the Hamas-controlled Gaza Strip by air and sea overnight and is calling up reservists for a possible ground operation to stop a barrage of Palestinian rocket fire into its territory, a military spokesman said.

“The next pivotal event will fall on Wednesday, with the release of the Fed minutes,” Edward Meir, an analyst at INTL FCStone Inc. in New York, said in a note dated today.

Bullion for immediate delivery was little changed at $1,319.05 an ounce by 11:06 a.m. in London, according to Bloomberg generic pricing. The metal, which rose to $1,332.33 on July 1, the highest price since March 24, dropped as much as 0.7 percent to $1,311.64 yesterday. Gold for August delivery added 0.2 percent to $1,320.20 an ounce on the Comex in New York.

“Market expectations for an early rate hike are pressuring the gold price,” Sarah Xie, a Hong Kong-based analyst at Wing Fung Financial Group Ltd., wrote in a note. “Gold is expected to remain flat until investors get more guidance from the Fed regarding the timing of rate increases.”

The net-long position in gold rose 20 percent to 136,929 futures and options contracts in the week to July 1, according to U.S. Commodity Futures Trading Commission data published last week. That’s the highest since March and up fourfold since the start of the year.

Interest Rates

The outlook for rising U.S. interest rates and low inflation expectations may see gold declining on an average basis for the next five quarters, Joel Crane, a Morgan Stanley analyst, wrote in a quarterly report today. The bank forecasts prices to average $1,264 this year and $1,180 in 2015.

“Price action in precious metals has been generally subdued this week, albeit supported,” Edel Tully, an analyst at UBS AG in London, said in a note today. “Precious metals are currently in search of the next set of catalysts to drive prices in the months ahead. For gold, apart from the continued focus on macroeconomic factors, seasonality is also likely to come into play during this quarter.”

Palladium for immediate delivery increased 0.5 percent to $873.06 an ounce, after climbing for a 12th day to as much as $873.14, the highest price since February 2001. Spot silver was little changed at $21.0501 an ounce, while platinum increased 0.4 percent to $1,500.06 an ounce.

Impala Platinum Holdings Ltd., the second-largest producer, says it expects workers who walked out last week at its Marula mine to report for duty today. The strike followed a five-month stoppage that crippled output at the biggest producers in South Africa.

Source:  Bloomberg