Gold futures dropped to an eight-month low on waning demand for the metal as a hedge against inflation.
Money mangers pared their bullish wagers on the metal for three straight weeks, while open interest in New York futures and options is near the lowest in five years. Inflation expectations, measured by the five-year Treasury break-even rate, reached the lowest since December this week.
Bullion has fallen 6.8 percent since June, heading for its first quarterly loss this year. Even as the U.S. expanded sanctions against Russia and ramped up its military campaign to combat Islamic State in Iraq, investor interest in bullion has been muted as the U.S. economy recovered. Improved prospects for faster growth have boosted speculation that the Federal Reserve will signal a move toward raising interest rates at its meeting next week.
“Gold is just not as appealing of an asset at this time,” Tim Evans, the chief market strategist at Long Leaf Trading Group Inc. in Chicago, said in a telephone interview. “The market is not expecting an inflationary environment for some time. The strength in the U.S. dollar and the strength in equity markets have attracted global capital. Those forces outweigh geopolitical tensions.”
Bullion futures for December delivery fell 0.6 percent to close at $1,231.50 an ounce at 1:38 p.m. on the Comex in New York. After the settlement, prices touched $1,228.10, the lowest for a most-active contract since Jan. 10.
Gold tumbled 28 percent last year, the most in three decades. The Fed reduced monthly bond purchases to $25 billion on July 30, the sixth cut of $10 billion since November. Goldman Sachs Group Inc. analysts have forecast prices will touch $1,050 in 12 months as the U.S. economy improves.
Fed policy makers will meet Sept. 16-17. Sales at American retailers climbed in August at the fastest pace in four months, while consumer sentiment in September rose above the median estimate in a Bloomberg survey of economists, reports showed today.
Speculation that the central bank is getting closer to raising interest rates cut the outlook for inflation and helped drive the Bloomberg Dollar Spot Index this week to the highest since July 2013.
“The hypothesis that the Fed is likely going to signal an increasingly probability of a hike is very telling,” Bart Melek, the head of commodity strategy at TD Securities in Toronto, said in a telephone interview. “Gold is not doing well.”
Silver futures for delivery in December rose less than 0.1 percent to $18.606 an ounce on the Comex, after dropping to $18.455, the lowest since June 2013.
On the New York Mercantile exchange, platinum futures for October delivery slid less than 0.1 percent to $1,307.50 an ounce. Palladium futures December delivery rose 0.3 percent to $836.05 an ounce.