Gold futures fell, posting the longest slump in seven weeks, as the dollar’s rally to a five-year high eroded the appeal of the precious metal as an alternative investment.
Futures approached a four-year low as the greenback climbed against a basket of 10 currencies after Japan expanded monetary stimulus, while the Federal Reserve moved closer closer to its first interest-rate increase in eight years.
On Oct. 31, gold capped a consecutive monthly decline, the first this year, after touching $1,160.50 an ounce, the lowest since July 2010. Higher interest rates reduce the metal’s allure because the commodity generally offers investors returns only through price gains, while a stronger dollar typically cuts demand for a store of value. Societe Generale SA and Goldman Sachs Group Inc. are among banks expecting further losses for gold.
“There is a clear divergence between the outlook for U.S. economy and other major economies, and that’s pushing people to dollar,” David Meger, the director of metals trading at Vision Financial Markets in Chicago, said in a telephone interview. “Also, expectation of a rate hike in the U.S. is making gold less attractive.”
Gold futures for December delivery dropped 0.2 percent to settle at $1,169.80 at 1:47 p.m. on the Comex in New York after touching $1,161. The metal declined for the fourth straight session, the longest slump since Sept. 12.
A private gauge of U.S. manufacturing expanded in October at a faster pace than forecast, signaling factories are withstanding slowed global markets.
“The prospect of firmer rates, coupled with our expectation for a stronger dollar, present significant headwinds for gold and are likely to skew risks to the downside,” Barclays Plc analysts including New York-based Suki Cooper said in a report.
This year, gold has dropped 2.7 percent, heading for a consecutive annual drop for the first time since 1998. The price tumbled 28 percent in 2013 as the Fed prepared to end debt purchases and holdings in exchange-traded products backed by the metal slumped.
Last week, assets in ETPs fell to a five-year low, data compiled by Bloomberg show. The net-long position in gold futures and options declined for the first time in three weeks in the period ended Oct. 28, U.S. government data showed.
The chances of gold dropping to $1,000 are rising as cheaper energy means lower inflation, Michael Haigh, Societe Generale’s head of commodities research, said last week in an interview in New York. Goldman Sachs’s Jeffrey Currie expects prices to drop to $1,050 by year-end. Both correctly forecast the 2013 rout.
Silver futures for December delivery gained 0.6 percent to $16.201 an ounce. On Oct. 31, the price touched $15.635, the lowest since February 2010. The metal has dropped 16 percent this year after plunging 36 percent in 2013.
On the New York Mercantile Exchange, platinum futures for January delivery rose 0.6 percent to $1,242.80 an ounce.
Palladium futures for delivery in December climbed 1.6 percent to $804.40 an ounce.
This year, palladium has climbed 12 percent, and platinum has dropped 9.5 percent.
The spot platinum-palladium ratio fell as much as 1.6 percent to 1.5331, the lowest since May 24, 2002, according to Bloomberg generic prices.