Gold’s Biggest Drop in 4 Months Underscores Goldman View

Gold capped the biggest four-day drop since November after the Federal Reserve stoked the outlook for higher interest rates, underscoring Goldman Sachs Group Inc.’s forecast that the 2014 rally would reverse.

Bullion, which slid the most since 1981 last year as some investors lost faith in the metal as a store of value, rebounded 11 percent in 2014 amid faltering U.S. economic growth and escalating tensions in Ukraine before retreating to near $1,330 an ounce. Goldman’s Jeffrey Currie said this month the gains would be short-lived and the chances are increasing prices will reach $1,000 for the first time since 2009.

Fed Chair Janet Yellen said yesterday the central bank’s stimulus program could end this fall and benchmark interest rates could rise about six months later. Policy makers cut monthly bond-buying by $10 billion at the conclusion of their two-day meeting yesterday, leaving purchases at $55 billion.

“People are reassessing their reasons to hold gold,” Adam Klopfenstein, a senior market strategist at Archer Financial Services in Chicago, said in a telephone interview. “Gold has removed its safe-haven hat.”

Gold futures for April delivery fell 0.8 percent to close at $1,330.50 at 1:48 p.m. on the Comex in New York. Prices dropped 3.5 percent in four straight sessions of losses, the longest slide since November. Bullion reached $1,320.80 today, the lowest since Feb. 28.

Trading was 34 percent higher than the 100-day average for this time of day, data compiled by Bloomberg showed.

The Fed released new forecasts yesterday showing more officials predicting the benchmark rate, now close to zero, would rise at least to 1 percent at the end of 2015.

Ukraine Tensions

The precious metal surged 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 boost the economy. Prices reached a six-month high of $1,392.60 on March 17 as turmoil over Ukraine left Russia and the West embroiled in their worst confrontation since the Cold War.

Ukraine said it plans to reinforce its eastern border with Russia and withdraw troops from Crimea, ceding control of the Black Sea peninsula as tensions remained high over Russian moves to annex the breakaway region.

“The fear premium is fading away in a hurry,” Frank Lesh, a trader at FuturePath Trading LLC in Chicago, said in a telephone interview. “Now, the market is adjusting to the rate-hike scenario.”

ETP Holdings

Bullion jumped more than 500 percent in the 12 straight years of gains through 2012, reaching a record $1,923.70 in September 2011. Prices fell into a bear market in April partly as a rally in U.S. equities cut demand for haven assets.

Gold held in exchange-traded products rose for a second day yesterday, increasing 1.5 metric tons to 1,764 tons, data compiled by Bloomberg show. The value of the assets tumbled $73 billion in 2013 and the holdings reached 1,735.4 tons last month, the lowest since 2009.

Silver futures for May delivery fell 1.9 percent to $20.43 an ounce on Comex. Prices posted a fourth day of losses, the longest streak since Nov. 13.

On the New York Mercantile Exchange, platinum futures for April delivery declined 1.2 percent to $1,434.80 an ounce, the biggest loss since January. Palladium futures for June delivery gained 0.4 percent to $771.65 an ounce.

To contact the reporters on this story: Debarati Roy in New York at droy5@bloomberg.net; Nicholas Larkin in London at nlarkin1@bloomberg.net

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

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