Gold Drops Most This Month as Commodity Losses Cut Metal Demand

  • Investors waiting for Federal Reserve meeting next week
  • The metal ``is a little overvalued right now,'' Cordier says

Gold dropped the most this month as losses across commodities weighed on the metal amid speculation that inflation will stay low.

The Bloomberg Commodity Index, a measure of returns for 22 components, fell to the lowest in more than two weeks, with declines led by coffee and natural gas. Gold prices are heading for a third straight annual loss, the worst slump since 1998, partly as muted U.S. inflation cut demand for the metal as a store of value.

“You really don’t need an inflation hedge with raw-material prices falling,” James Cordier, the founder of Optionsellers.com in Tampa, Florida, said in a telephone interview. “With lower to no inflation, gold is a little overvalued right now.”

Gold futures for December delivery dropped 0.9 percent to settle at $1,167.10 an ounce at 1:43 p.m. on the Comex in New York, falling for a third time in four sessions. It was the biggest decline since Sept. 30.

Metal traders are also waiting for the Federal Reserve’s policy meeting next week for more clues on when officials will raise interest rates. While some central bank officials, including Chair Janet Yellen, said they still expect a rate rise this year, Fed-fund futures show the market sees a 32 percent chance that borrowing costs will increase by December. Higher rates tend to hurt gold prices because the metal doesn’t pay interest or give returns like assets such as bonds or equities.

Gold’s volatility has dropped ahead of the central bank’s gathering. A measure of the metal’s 30-day historical prices swings on Tuesday was at a one-month low. The Fed, which has held borrowing costs at a record low since 2008, next meets Oct. 27-28.

“There’s such an incredible minority of people who think that there’s going to be any type of move in rates, and I’m not sure it will be of great interest,” Cordier said. “A lot of traders of gold are saying volatility is gone.”

Silver futures for December delivery dropped 1.3 percent to $15.710 an ounce on the Comex. On the New York Mercantile Exchange, platinum futures for January delivery fell 1.3 percent to $1,007.10 an ounce, and palladium futures for December delivery slid 2.5 percent to $677.15 an ounce, the biggest loss since Sept. 1.

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