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Gold Falls to Six-Week Low on Draghi Deflation Warning

Gold futures fell below $1,700 an ounce to a six-week low as European Central Bank President Mario Draghi said his plan to buy government bonds “will not lead to inflation.”

Draghi said in Berlin that “in our assessment, the greater risk to price stability is currently falling prices in some euro-area countries.” Gold rallied this year as the Federal Reserve expanded economic-stimulus measures. The central bank said today that unemployment remains elevated as it maintains $40 billion in monthly purchases of mortgage-backed securities.

“The market is sensing the deflationary worries, and that is not good for gold,” Michael Gayed, the chief investment strategist and co-portfolio manager of ATAC Inflation Rotation Fund at New York-based Pension Partners LLC, which advises on more than $150 million in assets, said in a telephone interview. “There was nothing new from the Fed, so the market tone remained bearish.”

Gold futures for December delivery traded at $1,703.30 at 4:27 p.m. on the Comex in New York. The metal settled at $1,701.60 today, down 0.5 percent. After the close, the price touched $1,698.70, the lowest for a most-active contract since Sept. 7.

“Gold is not getting any support since people are not talking about an inflation spike,” Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago, said in a telephone interview. “The slowdown concerns are also weighing on gold.”

Fed Meeting

In mid-September, the Fed announced its third round of easing and said will probably keep its benchmark interest rate close to zero percent until at least the middle of 2015.

The Fed’s announcement drove gold earlier in October to the highest in almost 11 months. The central bank concluded its two- day meeting today.

“The market now thinks that probably $40 billion a month may not be enough to boost growth that can be sustained,” Gayed of Pension Partners said.

This year, gold has advanced 8.6 percent. In October, the price has averaged $1,755.28, the highest since September 2011, when the metal surged to an intraday record of $1,923.70.

Silver futures for December delivery slid 0.5 percent to $31.62 an ounce in New York. Earlier, the metal touched $31.535, the lowest since Aug. 31.

On the New York Mercantile Exchange, platinum futures for January delivery dropped 0.8 percent to $1,562.70 an ounce. The metal declined for the fifth straight session, the longest slump since Aug. 30.

Palladium futures for December delivery slipped 0.2 percent to $592.75 an ounce. The price dropped for the fifth straight session, the longest slump since May 9.

To contact the reporters on this story: Debarati Roy in New York at droy5@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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