Gold Declines as Comments From Fed Officials Fuel Rate Concerns

  • ETP flows show indecision as holdings fluctuate for six days
  • A Fed move ``may well be closer than expected,'' analyst says

Gold futures fell for the second time in three sessions as comments from some Federal Reserve officials fueled concern that the central bank may raise interest rates this year.

Three policy makers argued for lifting the Fed’s key rate before year-end, days after a September increase was rejected amid financial-market volatility and concern about an economic slowdown in China. Tighter monetary policy curbs demand for gold because it doesn’t pay interest, unlike competing assets.

The comments counter bets by many traders that the Fed will wait until 2016. Interest-rate futures now give just a 20 percent chance of an increase at the Fed’s October meeting, and almost 49 percent probability of a move by December, according to data compiled by Bloomberg. On Friday, odds of a December move were less than 46 percent.

“The market had real differing opinions on whether the Fed would raise rates last Thursday, and we’re starting to get color now with what went on at the Fed meeting, and it appears it may well be closer than expected,” Tai Wong, the director of commodity products trading at BMO Capital Markets Corp. in New York, said in a telephone interview. “That’s why we’ve seen gold drop.”

Gold futures for December delivery fell 0.4 percent to settle at $1,132.80 an ounce at 1:44 p.m. on the Comex in New York. Prices on Friday posted the first weekly advance since Aug. 21 after the Fed held rates unchanged.

Close Call

San Francisco Fed President John Williams, a policy centrist who has worked closely with Chair Janet Yellen, said Sunday that “in my mind, it was a close call” to delay a rate rise at last week’s Federal Open Market Committee meeting.

While this year has been marked by investors pulling money out of gold funds, there are some recent signs of indecision. The amount of bullion held in exchange-traded products has risen and fallen in alternating fashion over the past six days, the longest period of see-sawing this year.

Assets increased by 0.8 metric tons to 1,517.3 tons, data compiled by Bloomberg as of Friday showed.

Silver futures climbed on the Comex. Platinum declined on the New York Mercantile Exchange, while palladium rose.

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