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Gold Drops Most in Four Weeks on U.S. Home Sales, Dollar Rally

Feb. 26 (Bloomberg) -- Gold futures posted the biggest drop in almost four weeks after an increase in new-home sales in the U.S. to a five-year high bolstered optimism in the economy, crimping demand for the metal as an alternative investment.

The dollar headed for the biggest gain in three weeks against a basket of 10 currencies. New-home purchases rose 9.6 percent to a 468,000 annualized pace, topping all estimates of economists surveyed by Bloomberg, Commerce Department data showed today. Earlier, gold reached a 17-week high.

“Today’s data was a blow to the gold market,” Phil Streible, a senior commodity broker at R.J. O’ Brien & Associates in Chicago, said in a telephone interview. “Also, there is some selling after the huge run up ”

Gold futures for April delivery slid 1.1 percent to settle at $1,328 an ounce at 1:45 p.m. on the Comex in New York, the biggest drop for a most-active contract since Jan. 30. Earlier, the metal climbed to $1,345.60, the highest since Oct. 30.

The Federal Reserve cut monthly U.S. bond buying by $10 billion at each of its past two meetings, leaving purchases at $65 billion. Gold surged 70 percent from December 2008 to June 2011 as the central bank pumped more than $2 trillion into the financial system to boost growth.

Gold has rallied 10 percent this year. In 2013, the metal tumbled 28 percent, the most since 1981, amid a global equity rally and muted U.S. inflation. Fed Chairman Janet Yellen may reiterate a plan to continue to cut bond buying when she testifies before a Senate panel tomorrow.

ETF Holdings

Gold headed for a second straight monthly gain, the first since August, as concern that the U.S. recovery may be faltering and turmoil in emerging markets increased demand for a store of value. Yesterday, assets in the SPDR Gold Trust, the biggest exchange-traded product backed by the metal, climbed for the third straight session, the longest advance since November 2012.

Analysts are split on the price outlook.

Gold will decline to $1,011 in December as the Fed tapers monetary stimulus and the dollar strengthens, Westpac Banking Corp. said Feb. 20. Goldman Sachs Group Inc. said the metal will drop to $1,050 by the end of the year.

UBS AG said Feb. 19 that the commodity has “started to shed its stigma” and increased its 2014 forecast to $1,300 from $1,200. Credit Agricole SA’s private-banking unit said this week that “the easy money from being net short is probably behind us” amid sustained demand in China.

Silver futures for May delivery slumped 3.2 percent to $21.289 an ounce, the biggest drop since Dec. 19.

Palladium futures for June delivery dropped 0.7 percent to $733.30 an ounce on the New York Mercantile Exchange.

Platinum futures for April delivery fell 0.9 percent to $1,429.10 an ounce.

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

To contact the editor responsible for this story: Patrick McKiernan at pmckiernan@bloomberg.net

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