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Gold Falls Most in Four Weeks on Signs of Tame Inflation

Jan. 31 (Bloomberg) -- Gold futures posted the biggest drop in almost four weeks as U.S. inflation concerns waned, eroding demand for the metal as a hedge against rising consumer prices.

A government report today showed an index of inflation tied to spending patterns was unchanged in December from November. Excluding food and energy costs, prices climbed 1.4 percent in 2012, compared with a 1.9 percent increase in the previous year. Inflation “has been running somewhat below the committee’s longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices,” the Federal Open Market Committee said yesterday.

“Deflation is probably a greater risk now than inflation, and the concern is that the deflationary forces may be more than central banks can handle,” Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago, said in a telephone interview. “Every time gold rallies, those deflationary forces keep batting it down.”

Gold futures for April delivery dropped 1.2 percent to settle at $1,662 an ounce at 1:43 p.m. on the Comex in New York, the biggest decline for a most-active contract since Jan. 4. This month, the price dropped 0.8 percent, the fourth straight decline and the longest slump since May.

The Federal Reserve said yesterday that it will keep buying securities at a rate of $85 billion a month.

Silver futures for March delivery dropped 2.6 percent to $31.351 an ounce on the Comex, the biggest loss since Dec. 20. The price climbed 3.7 percent this month.

On the New York Mercantile Exchange, platinum futures for April delivery declined 0.8 percent to $1,675.40 an ounce on the Nymex. This month, the price gained 8.6 percent, the most in a year.

Palladium futures for March delivery fell 0.8 percent to $745.70 an ounce on the Nymex. The price climbed 6 percent this month.

To contact the reporter on this story: Joe Richter in New York at jrichter1@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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