Gold Futures Decline on U.S. Inflation Data, Fed Rate Outlook

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Gold futures fell as rising U.S. consumer prices signaled an approach to the Federal Reserve’s inflation target, boosting prospects for the first interest-rate increase since 2006.

The cost of living excluding food and fuel rose at a faster pace than expected in April, government data showed Friday. Fed policy makers have indicated they are watching inflation and the job market to help determine when to lift borrowing costs. The dollar extended a rally against a basket of 10 currencies after Fed Reserve Chair Janet Yellen said she expects a rate increase this year if the economy meets her forecasts.

“Even though it was not a big jump in inflation, it was enough to bring back the rate anxiety,” Frank Lesh, a trader at FuturePath Trading LLC in Chicago, said in a telephone interview. “You saw an immediate reaction in dollar, and the strength was a headwind for gold.”

On the Comex in New York, gold futures fell less than 0.1 percent to settle at $1,204 an ounce at 1:49 p.m. The metal declined 1.7 percent this week.

Higher rates drive investors to favor assets that pay interest, including new bonds, curbing the appeal of gold, which generally offers returns only through price gains.

Gradual Pace

Yellen spoke Friday to the Greater Providence Chamber of Commerce in Providence, Rhode Island. She said she expects a gradual pace of tightening to follow the rate increase.

“The market is still trying to understand if the remarks were more hawkish or dovish,” Tai Wong, the director of commodity products trading at BMO Capital Markets Corp. in New York, said in a telephone interview. “Yellen says that a rate increase could be ’appropriate’ this year, but tempers with several contingent conditions.”

Holdings in exchange-traded funds backed by gold headed for the third straight weekly drop, according to data compiled by Bloomberg.

Gold jumped 3.1 percent last week, partly on speculation that a faltering economic recovery would spur the Fed to keep borrowing costs close to a record low. The central bank’s benchmark rate has been near zero percent since 2008.

Silver futures for July delivery fell 0.5 percent to $17.051 an ounce after rising as much as 1.2 percent.

On the New York Mercantile Exchange, platinum futures for July delivery declined 0.3 percent to $1,148.60 an ounce. The metal dropped 1.8 percent this week.

Palladium futures for June delivery rose 1 percent to $784 an ounce. This week, the price fell 1.4 percent.

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