Gold Falls Most in Three Months After Fed Stimulus Cut

Gold fell the most in three months after the Federal Reserve further reduced U.S. monetary stimulus and more officials predicted a rise in interest rates in 2015, curbing demand for the metal as a store of value.

The Fed reduced the monthly pace of bond purchases by $10 billion to $55 billion, and 13 of the 16 Federal Open Market Committee participants expect an increase in the main interest rate next year. Spot gold has lost 3.9 percent this week on signs the American economy is pulling out of a slowdown that policy makers linked in part to harsh winter weather.

“The real surprise is that the Fed officials see rates rising next year, and that is very negative for gold,” Charlie Bilello, director of research who helps oversee $220 million of assets at New York-based Pension Partners LLC, said in a telephone interview. “Also, the Fed talking about the economy showing strength makes this statement less dovish than widely anticipated.”

Gold for immediate delivery slumped 1.9 percent to $1,329.80 an ounce at 3:27 p.m. in New York, heading for the biggest drop since Dec. 19.

Futures for April delivery settled 1.3 percent lower at $1,341.30 on the Comex in New York. The metal fell for the third straight day, the longest slump in 10 weeks. The metal rose to a six-month high of $1,392.60 on March 17 amid escalating tension between Russia and Ukraine.

This year, gold has advanced 12 percent as signs of slowing global growth and turmoil in Eastern Europe increased demand for haven assets. Russian President Vladimir Putin said his country isn’t seeking to split Ukraine further. The U.S. and Europe pledged more sanctions for his drive to annex Crimea.

Fed Tapering

Last year, gold fell 28 percent, the most since 1981, amid a rally in equities and on concern that the Federal Reserve will slow the pace of monetary stimulus. The price jumped 70 percent from December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system and cut interest rates to a record to boost the economy.

Weather played an important role in weakening economic activity in the first quarter, Fed Chair Janet Yellen said today after the FOMC’s two-day meeting.

“There is sufficient underlying strength in the broader economy to support ongoing improvement in labor-market conditions,” the FOMC said in a statement.

The central bank also cut monthly bond buying by $10 billion at the prior two meetings.

Goldman Sachs Group’s Jeffrey Currie said this month the chances are increasing that prices will slump to $1,000 for the first time since 2009.

“Gold will remain under pressure as it’s clear that tapering with continue,” Mike Meyer, assistant vice president at EverBank Wealth Management in St. Louis, said in a telephone interview. “The temporary safe-haven premium because of Russia is slowly disappearing.”

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

To contact the editors responsible for this story: Millie Munshi at mmunshi@bloomberg.net Joe Richter, Patrick McKiernan

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