Gold fell the most in a week on speculation that the dollar will extend a rally, eroding demand for the precious metal as an alternative asset.
The greenback rose against the euro and the yen as U.S. economic data pointed to a recovering economy with a low inflation rate. The U.S. consumer-price index increased 0.1 percent in November. Gold has gained 26 percent this year, reaching a record $1,432.50 an ounce on Dec. 7.
“As economic activity looks to improve, that’s going to strengthen the dollar and hurt gold,” said Frank Lesh, a trader at FuturePath Trading LLC in Chicago. “The inflation numbers also took gold down a little bit. If you’re buying these commodities to hedge against inflation, today’s data didn’t show that you were right in doing so yet.”
Gold futures for February delivery fell $18.10, or 1.3 percent, to settle at $1,386.20 at 2:02 p.m. on the Comex in New York. It was the biggest decline for the most-active contract since Dec. 8.
U.S. industrial production rose 0.4 percent in November, more than forecast, government data showed.
Yesterday, the Federal Reserve kept its benchmark interest rate at zero percent to 0.25 percent and maintained it will continue with a plan to buy back $600 billion in bonds through June.
“In an environment where central banks in the industrialized world are keeping interest rates low, gold can continue to compete aggressively for risk capital,” analysts at Deutsche Bank AG said in a report.
Still, some investors today were betting on higher interest rates in the future. Treasury 30-year bonds fell, pushing the yield to a seven-month high.
“As interest rates rise, the dollar is going to scream higher and all the metals are going to come down hard,” said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois.
Gold assets in exchange-traded products fell 4.83 metric tons to 2,091.56 tons yesterday, according to data compiled by Bloomberg from 10 providers. Holdings reached a record 2,104.65 tons on Oct. 14.
Silver futures for March delivery fell 53.5 cents, or 1.8 percent, to $29.253 an ounce on the Comex. The metal has gained 74 percent this year.
Palladium futures for March delivery dropped $15.55, or 2 percent, to $752.65 an ounce on the New York Mercantile Exchange.
Platinum futures for January delivery fell $9.50, or 0.6 percent, to $1,704.40 an ounce.
Palladium has surged 84 percent this year, and platinum is up 16 percent.