Gold Falls Most in 10 Weeks on Fed Stimulus Outlook; Silver Sags

Gold capped the biggest drop in 10 weeks in New York amid concern that the Federal Reserve will reduce its bond buying as U.S. lawmakers reached a budget agreement. Silver and palladium also tumbled.

A two-year U.S. budget accord is on track to win passage in Congress. American retail sales in November climbed 0.7 percent in November, the most since June, government figures showed today. The Fed may begin cutting stimulus at its Dec. 17-18 meeting, according to 34 percent of economists surveyed Dec. 6 by Bloomberg, up from 17 percent on Nov. 8.

“The budget agreement is another factor that could work in favor of the Federal Reserve tapering its monthly bond-buying program sooner,” Jim Wyckoff, a senior analyst at Kitco Inc., a research company in Montreal, said in an e-mailed report. “Recent upbeat U.S. economic data also suggests the Fed might move up its timeline for implementing a tapering.”

Gold futures for February delivery declined 2.6 percent to settle at $1,224.90 an ounce at 1:45 p.m. on the Comex in New York, the biggest drop for a most-active contract since Oct. 1.

Bullion has tumbled 27 percent this year on speculation that the Fed will start scaling back its $85 billion in monthly bond buying, known as quantitative easing.

“It looks plausible that gold eases back towards $1,220 as we move toward the Fed decision,” said Bjarne Schieldrop, the Oslo-based chief commodity analyst at SEB AB. “However, looking at next year, we are not so overly bearish as interest rates will continue to be a record low and QE will continue for a while even if it will be gradually reduced.”

SPDR Holdings

Holdings in the SPDR Gold Trust, the biggest exchange-traded product backed by bullion, declined 0.3 percent to 833.6 metric tons yesterday, the lowest since January 2009, and contracted 38 percent this year.

The drop in gold helped drag down silver, Adam Klopfenstein, a senior market strategist at Archer Financial Services in Chicago, said in a telephone interview. Gains in the dollar, which reduce the appeal of commodities as alternative investments, also pinched precious metals, he said.

Silver futures for March delivery fell 4.4 percent to $19.453 an ounce in New York, the biggest drop since Oct. 31.

On the New York Mercantile Exchange, palladium futures for March delivery retreated 2.5 percent to $720.25 an ounce, the biggest loss since Oct. 3. Platinum futures for January delivery slid 1.5 percent to $1,364.40 an ounce.

To contact the reporters on this story: Joe Richter in New York at jrichter1@bloomberg.net; Maria Kolesnikova in London at mkolesnikova@bloomberg.net

To contact the editor responsible for this story: Millie Munshi at mmunshi@bloomberg.net

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