Gold dropped the most in seven weeks and erased this year’s gain after a government report showed that applications for U.S. jobless benefits declined last week to the lowest in 15 years.
The drop for unemployment claims underscores the Federal Reserve’s outlook that drags on economic growth earlier this year were “transitory” and adds to speculation that policy makers won’t delay raising borrowing costs. Higher interest rates typically drive investors to favor assets with better yield prospects, such as equities, especially as U.S. inflation stays low.
Bullion fell in the previous two months, partly as expectations that the U.S. economy would be able to rebound from a harsh winter cut demand for the metal as a haven. Prices were little changed in April, and options trading showed that investors are pulling out of bets on a rally. Three of the top four options contracts in New York with the most volume on Thursday were calls that slumped at least 60 percent.
“Gold is just getting spanked,” Tai Wong, the director of commodity products trading at BMO Capital Markets Corp. in New York, said in a telephone interview. “The employment picture needs to continue to improve for the Fed to start liftoff, and the weekly claims are the most immediate data available on a regular basis on the condition of the job market.”
Gold for immediate delivery fell 1.7 percent to $1,184.37 an ounce at 4:59 p.m. New York time, the biggest drop since March 6, according to Bloomberg generic pricing. The metal is unchanged in 2015. Prices rose as much as 10 percent from the end of December to this year’s high of $1,307.62 in January.
The metal fell on Wednesday after the Fed said that U.S. growth will rebound to a “moderate pace,” damping speculation that rate increases may be delayed until 2016. Economists surveyed by Bloomberg last week had pushed back expectations for tightening amid signs of uneven expansion. The benchmark federal-funds rate has been kept close to zero percent since December 2008.
First-time filings for unemployment insurance fell by 34,000 to 262,000 in the week ended April 25, the lowest since April 15, 2000, a government report showed Thursday.
“Moves in the gold market over the past two days have been all about the Fed,” Bernard Dahdah, an analyst at Natixis SA in London, said in a telephone interview. “The market continues to oscillate around $1,200. Barring news out of Europe, that probably won’t change unless the view for U.S. rates becomes clearer.”