Gold Drops to Four-Week Low as Fund Holdings Fall on Fed Outlook

  • Traders see 50% chance that Fed will raise rates in December
  • Gold holdings in ETPs decline to lowest in two weeks

Gold declined to a four-week low and investors cut their holdings in bullion-backed funds to the smallest in two weeks as traders gave even odds that the Federal Reserve will raise interest rates in December.

Fed-fund futures data show odds that U.S. policy makers will increase rates this year has risen to 50 percent, from 35 percent on Oct. 27, a day before the Fed signaled it’s still considering tightening monetary policy this year. Higher rates diminish gold’s appeal because it doesn’t pay interest or give returns like assets such as bonds or equities.

Last week, gold posted the biggest drop since August and hedge funds finally backed away from bullish bullion bets. Reports showed the U.S. labor market and consumer spending remain resilient even as global growth cools, helping explain why Fed policy makers are open to a rate increase as soon as December. Traders are looking to payrolls data due Friday for further clues on the central bank’s timing.

“Gold is down here because people are really nervous about how this payroll number is going to come out on Friday,” Phil Streible, a senior market strategist at RJO Futures in Chicago, said in a telephone interview. “This number seems to be the do or die whether we get this rate hike this year.”

Gold futures for December delivery dropped 0.5 percent to settle at $1,135.90 an ounce at 1:55 p.m. on the Comex in New York, after touching $1.132.50, the lowest since Oct. 5. The metal capped its fourth decline in five sessions.

Holdings in exchange-traded products backed by gold declined 2.6 metric tons to 1,539.7 tons as of Friday, the lowest since Oct. 16, data compiled by Bloomberg show.

Silver futures for December delivery declined 1 percent to $15.408 an ounce on the Comex. On the New York Mercantile Exchange, platinum futures for January delivery lost 1.1 percent to $978.40 an ounce, and palladium futures for December delivery fell 4 percent to $650.35 an ounce, the biggest drop in two months.

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