Gold price drops on Fed fears

New York (Sept 25)  Federal Reserve Chair Janet Yellen dealt a blow to gold bulls who had pushed prices to the highest in a month.

Yellen on Thursday said the central bank is on track to raise interest rates this year. Her message was consistent with other policy makers who have talked up the prospect of higher rates since last week’s policy meeting. The Fed decided to keep rates unchanged at a record low at that meeting, citing concerns about weaker-than-hoped-for inflation and the impact of the slowdown in China.

Higher borrowing costs curb the appeal of the metal, which doesn’t pay interest or give returns like other assets such as bonds and equities. Before Yellen’s comments, bullion had climbed the most since April as data showed orders for US durable goods fell in August.

“Higher US rates is a major positive for the dollar and bad news for gold,” Georgette Boele, a strategist at ABN Amro Bank in Amsterdam, said by e-mail. “Financial markets had adjusted their expectations downwards for such a rate hike after last week’s meeting. Gold should go down further.”

Gold price

Bullion for immediate delivery dropped 1 percent to $1 142.75 an ounce by 10:02 a.m. in London. The first decline in three days pared the metal’s second straight weekly increase. Prices reached a five-year low in July.

Traders now see a greater chance the Fed will raise rates by year-end. There’s a 49 percent probability the central bank will increase rates by its December 15-16 meeting, up from 42.6 percent two days ago, according to data compiled by Bloomberg based on futures. That’s still down from 60 percent odds at the end of August.

The Bloomberg Dollar Spot Index climbed for the fifth time in six days, heading for its biggest weekly advance since mid- July.

Investors had boosted holdings in gold-backed funds to the highest in three weeks, data compiled by Bloomberg show. They bought 8.4 metric tons in the three days through Thursday, the most since August. Assets reached a six-year low of 1,508.2 tons last month.

Silver declined 0.5 percent to $15.0655 an ounce in London. Platinum slipped 0.9 percent to $946.56 an ounce after reaching a six-year low on Wednesday. The metal dropped this week on concern Volkswagen AG’s emissions scandal may cut demand for the metal that’s mainly used to cut pollution from diesel vehicles.

Palladium, mostly used to curb harmful emissions in gasoline types, added 0.6 percent to $660.30 an ounce. It’s heading for an 8.8 percent weekly advance, the most since 2011.

Source: Bloomberg