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Gold Futures Fall, End Longest Rally Since November, After Dollar Rebounds
Gold futures fell, snapping the longest rally since November, as the dollar’s rebound curbed demand for the precious metal as an alternative asset.
The greenback gained as much as 0.4 percent against a basket of six currencies after tumbling 1.4 percent last week. Historically, gold moves inversely to the dollar. In the first half of the year, the metal and the U.S. currency climbed amid Europe’s debt crisis.
“The dollar is going to be the main driver, so if it continues to move higher, gold will struggle to hold these levels,” said Matthew Zeman, a trader at LaSalle Futures Group in Chicago.
Gold futures for December delivery dropped $2.70, or 0.2 percent, to close at $1,202.60 an ounce at 1:40 p.m. on the Comex in New York. The price gained 3.7 percent in the previous eight sessions, the longest advance since late November. The most-active contract is up 9.7 percent this year.
The metal fluctuated between gains and losses today as traders weighed a higher dollar against speculation that the Federal Reserve will extend the U.S. economic stimulus.
The Fed may step up buying of bonds to prop up the economy after a report on Aug. 6 showed nonfarm payrolls fell by 131,000 in July, said Tom Pawlicki, an analyst at MF Global Holdings Ltd. in Chicago.
Inflation Concern
“Friday’s payrolls and a lack of ammunition by the government may push the Fed closer toward” buying securities, Pawlicki said. “Purchases would be positive for gold prices, as traders would assume that they will eventually have to be monetized and thus become inflationary.”
The Fed made bond purchases as part of its response to the world financial crisis.
The U.S. central bank’s target for the overnight lending rate is at a record low. Gold, which pays no interest, becomes a more attractive investment when borrowing costs fall, eroding returns on cash.
Silver futures for September delivery declined 23 cents, or 1.2 percent, to $18.242 an ounce.
Platinum futures for October delivery dropped $27.90, or 1.8 percent, to $1,542.90 an ounce on the New York Mercantile Exchange.
Palladium futures for September delivery fell $7.95, or 1.6 percent, to $479.65 an ounce.
Platinum and palladium, used in jewelry and pollution- control devices in cars, were down for the fifth straight session.
To contact the reporters on this story: Millie Munshi in New York at mmunshi@bloomberg.net; Nicholas Larkin in London at nlarkin1@bloomberg.net.
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