Gold Extends Drop From Month High on Fed Stimulus Outlook

Gold futures slumped the most in a week on speculation that the U.S. Federal Reserve will continue trimming monetary stimulus, boosting the dollar and cutting the metal’s appeal as an alternative investment.

The greenback headed for the biggest gain in four months against a basket of 10 currencies. Reports showed manufacturing in the New York region expanded this month and producer prices in 2013 rose by the least in five years. Philadelphia Fed President Charles Plosser and his Dallas counterpart Richard Fisher called for more reduction of the Fed’s bond purchases.

“Gold is under pressure because of the good economic-recovery outlook,” Frank Lesh, a trader at FuturePath Trading LLC in Chicago, said in a telephone interview. “The dollar strength is working against prices.”

Gold futures for February delivery fell 0.6 percent to settle at $1,238.30 an ounce at 1:45 p.m. on the Comex in New York, the biggest drop for a most-active contract since Jan. 7.

The metal tumbled 28 percent last year, the most since 1981. Some investors lost faith in gold as a store of value amid a U.S. equity rally to a record and muted inflation. Fed policy makers said on Dec. 18 they will cut monthly debt purchases to $75 billion from $85 billion.

Gold rose as much as 6.3 percent from a six-month low on Dec. 31 on signs of more demand in China.

“The rally has lost steam as physical buying is very price sensitive,” Lesh said.

Silver futures for March delivery fell 0.7 percent to $20.134 an ounce. The price has dropped 36 percent in the past 12 months.

On the New York Mercantile Exchange, platinum futures for April delivery declined 0.4 percent to $1,428.60 an ounce. Palladium futures for March delivery gained 0.7 percent to $744 an ounce.

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