Gold Price Heads for Biggest Slump Since October, Erasing 2015 Gains

San Francisco (Apr 30)  Gold headed for the biggest two-day slump since October, erasing its 2015 gains, after a government report showed that applications for U.S. jobless benefits declined last week to the lowest in 15 years.

The drop for unemployment claims underscores the Federal Reserve’s outlook that drags on growth earlier this year were “transitory” and adds to speculation that policy makers won’t delay raising interest rates. Higher rates typically drive investors to favor assets with better yield prospects, such as equities, especially as U.S. inflation stays low.

Fed officials left open the possibility of boosting borrowing costs in the second half of this year by playing down the significance of the economy’s slowdown in the first quarter, a policy statement showed Wednesday. With officials signaling that U.S. expansion will be more resilient than some economists had suggested, there’s less reason for investors to hold gold as a haven, according to Lance Roberts, the chief strategist at STA Wealth Management.

“Gold is just getting spanked,” Tai Wong, the director of commodity products trading at BMO Capital Markets Corp. in New York, said in a telephone interview. “The U.S. employment picture needs to continue to improve for the Fed to start liftoff, and the weekly claims are the most immediate data available on a regular basis on the condition of the job market.”

Unemployment Filings

Gold for immediate delivery fell 2.3 percent to $1,177.45 an ounce at 10:11 a.m. in New York, according to Bloomberg generic pricing. A close at that level would leave prices down 2.9 percent in two sessions, the most since Oct. 31.

The declines Thursday erased bullion’s gains in 2015, with prices down 0.6 percent since December. The metal also wiped out its April advance, and is now heading for a third straight monthly loss.

The metal fell on Wednesday after the Fed said that U.S. growth will rebound to a “moderate pace,” damping speculation that rate increases may be delayed until 2016. Economists surveyed by Bloomberg last week had pushed back expectations for tightening amid signs of uneven expansion. The benchmark federal-funds rate has been kept near zero since December 2008.

First-time filings for unemployment insurance fell by 34,000 to 262,000 in the week ended April 25, the lowest since April 15, 2000, a Labor Department report showed Thursday.

“Moves in the gold market over the past two days have been all about the Fed,” Bernard Dahdah, an analyst at Natixis SA in London, said by phone. “The market continues to oscillate around $1,200 an ounce. Barring news out of Europe, that probably won’t change unless the view for U.S. rates becomes CLEARER."

Source: Bloomberg