Gold Falls to Lowest in a Month as Dollar Advance Saps Demand

Bullard: The Fed's Dot Plot May Be Counterproductive
  • Holdings in gold-backed ETFs increase for a sixth straight day
  • Bullard says Fed should consider raising rates at meeting

Gold futures fell to the lowest in almost a month as the dollar climbed for a fourth day, reducing demand for the metal as an alternative asset.

Federal Reserve Bank of St. Louis President James Bullard said policy makers should consider raising interest rates at their next meeting, helping boost the greenback. The Bloomberg Dollar Spot Index headed for the longest rally in five weeks.

Gold has risen 15 percent this year as fluctuations in equities and slowing growth in China increased the metal’s appeal as a haven. Bullion’s gains have slowed this month, with prices dropping in three of the past four sessions, as some Fed policy makers said recent economic data justify tighter monetary policy. Higher rates reduce the allure of gold, which doesn’t pay interest.

“You’re starting to get a number of Fed governors talking about April being back squarely on the table for the next interest rate hike,” Frank McGhee, the head dealer at Alliance Financial LLC in Chicago, said in a telephone interview. “In general, you have a stronger dollar resulting from a higher interest-rate environment, and gold has an inverse relationship.”

Gold futures for April delivery slid 2 percent to $1,224 an ounce at 1:43 p.m. on the Comex in New York, after touching $1,215.40, the lowest intraday price since Feb. 26. On Tuesday, the metal rose as much as 1.3 percent as haven demand increased following attacks in Brussels.

On Tuesday, Fed Bank of Chicago President Charles Evans said two interest-rate increases this year are “not at all unreasonable.” Fed-fund futures data show traders are pricing in a greater-than-even chance of a move in September.

In ETFs and other metals:

  • Investors added to exchange-traded funds backed by gold for a sixth straight day, with holdings at 1,766.5 metric tons, the highest since March 2014, according to data compiled by Bloomberg on Tuesday.
  • Futures data show traders are pricing in a 71 percent chance of a rate increase by December, up from 45 percent a month ago.
  • Silver futures for May delivery slid 3.9 percent to $15.272 an ounce on the Comex, the biggest drop in four months. On the New York Mercantile Exchange, platinum and palladium also fell.
Before it's here, it's on the Bloomberg Terminal. LEARN MORE