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Gold Drops to 3-Week Low on Concern Fed Will Taper, Dollar Rally

Nov. 7 (Bloomberg) -- Gold fell to a three-week low as U.S. economic expansion fueled speculation that the Federal Reserve will curb monetary stimulus, and as an unexpected cut in European interest rates send the dollar surging.

The economy in the U.S. expanded in the third quarter at a faster pace than forecast and jobless claims fell to 336,000 in the week ended Nov. 2 from 345,000 in the previous period, separate government reports said today. The Bloomberg U.S. Dollar Index reached a seven-week high after the European Central Bank cut its main refinancing rate to a record low.

“Today’s data says that tapering could happen soon,” Phil Streible, a senior commodity broker at R.J. O’Brien & Associates, said in a telephone interview from Chicago. “The dollar’s strength is crushing gold.”

Gold futures for December delivery declined 0.7 percent to settle at $1,308.50 an ounce at 1:59 p.m. on the Comex in New York, after touching $1,296, the lowest for the most-active contract since Oct. 17.

This year, gold has fallen 22 percent and prices are heading for their first annual loss since 2000 on speculation that the Fed will curb stimulus amid an equity rally and low inflation. The economy shows signs of “underlying strength,” central bank policy makers said on Oct. 30. The statement pointed to the possibility of reduced bond purchases as soon as December, Citigroup Inc. and Barclays Plc said.

Gold rose 70 percent from December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system.

Silver futures for December delivery dropped 0.5 percent to $21.657 an ounce in New York.

On the New York Mercantile Exchange, palladium futures for December delivery retreated 0.7 percent to $759.15 an ounce. Platinum futures for January delivery fell 0.7 percent to $1,456.80 an ounce.

Union members rejected a wage-raise offer at Northam Platinum Ltd., remaining on a strike that started Nov. 3, Ecliff Tantsi, the union’s negotiator at Northam, said by telephone.

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

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

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