Gold Drops Most in 13 Weeks; Palladium Extends Rally

Gold futures fell the most in 13 weeks after the outlook for higher U.S. interest rates damped demand for the precious metal as a store of value. Palladium rose to a 31-month high on supply concerns.

Federal Reserve Chair Janet Yellen said on March 19 that that the central bank’s benchmark rate may rise about six months after monetary stimulus ends, expected later this year. Policy makers announced the third $10 billion cut in monthly bond purchases, and gold last week dropped 3.1 percent, the most since November.

“People don’t want gold in a rising interest-rate environment,” David Meger, the director of metal trading at Vision Financial Markets in Chicago, said in a telephone interview. “While concerns about Crimea remain, there has been no escalation in violence for people to jump back into the safe-haven asset.”

Gold futures for June delivery fell 1.9 percent to settle at $1,311.10 an ounce at 1:45 p.m. on the Comex in New York, the biggest drop since Dec. 19. Earlier, the price touched $1,308.40, the lowest for a most-active contract since Feb. 20. Trading was 54 percent above the average for the past 100 days for this time, data compiled by Bloomberg showed.

This year, gold has climbed 9 percent on signs of a faltering global economy, while Russian President Vladimir Putin completed the annexation of Crimea.

Fed Stimulus

Gold rose 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. Jeffrey Currie, head of commodities research at Goldman Sachs Group Inc., said this month that the chances are increasing the metal will drop below $1,000.

“Gold began to move south again as macro funds liquidated what has proven to be a fairly profitable trade in recent weeks,” Morgan Stanley analysts led by Adam Longson said today in a report. “The change in tone from the Fed on the timing of the tightening cycle prompted another leg down.”

Last year, gold fell 28 percent, the most since 1981, as U.S. equities rallied to a record and inflation remained muted.

Palladium rose on concern that the prospect of more sanctions by the U.S. and the European Union against Russia, the world’s top source of the metal, will reduce supplies.

U.S. Sanctions

World leaders gathered in The Hague to discuss Ukraine amid growing concern over a Russian buildup on its neighbor’s border. President Barack Obama authorized potential future penalties on Russian industries, including financial services, energy, metals and mining, defense and engineering.

Palladium futures for June delivery rose 0.6 percent to $794.35 an ounce on the New York Mercantile Exchange. Earlier, the price reached $802.45, the highest since Aug. 3, 2011.

Absa Bank Ltd., a unit of Barclays Plc, plans to list NewPalladium, an exchange-traded fund, in Johannesburg on March 27.

“A perfect storm has been brewing for palladium this month,” UBS AG said today in a report, citing the ETP, a strike by miners in South Africa and Russian concerns.

“If no resolution is found in South Africa in the next few weeks, we think metal tightness will only intensify if producers are forced to source metal in the market,” the bank said.

Silver futures for May delivery fell 1.2 percent to $20.067 an ounce on the Comex. The price dropped for the sixth straight session, the longest slump in almost a year.

Earlier, silver touched $19.97, the lowest since Feb. 11. Last week, the metal dropped 5.2 percent, the most since mid-Sept.

Platinum futures for April fell 0.3 percent to $1,431.20 an ounce on the Nymex.

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 Joe Richter, Patrick McKiernan

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