Gold Futures Drop to 11-Week Low on U.S. Factory Output

Gold and silver futures tumbled to the lowest since June as U.S. manufacturing in August expanded at the fastest pace in three years, bolstering prospects for the economy and damping demand for the metal.

The dollar jumped to the highest since January against a basket of 10 currencies. A gauge of manufacturing orders increased by the most in a decade, Institute for Supply Management data showed today.

Gold has dropped this quarter on concern that the Federal Reserve is closer to raising interest rates. In August, holdings in exchange-traded products backed by the metal slumped for the fourth time in five months even as conflicts escalated in Ukraine and the Middle East.

“Good economic data and concern about the U.S. raising rates is keeping gold under pressure,” Tommy Capalbo, a broker at Newedge Group in New York, said in a telephone interview. “The political concerns seem to have taken a back seat for now.”

Gold futures for December delivery dropped 1.7 percent to settle at $1,265 an ounce at 1:42 p.m. on the Comex in New York, the biggest decline for a most-active contract since July 14. Earlier, the price touched $1,263.10, the lowest since June 17.

Trading was 47 percent above the average for the past 100 days for this time, data compiled by Bloomberg show. Yesterday, the Comex pit was closed for a public holiday.

Stimulus Outlook

Gold plunged 28 percent last year on expectations that U.S. monetary stimulus would slow. The Fed reduced monthly bond purchases to $25 billion on July 30 with the sixth consecutive cut of $10 billion since November. Chair Janet Yellen said Aug. 22 that if progress in labor markets “continues to be more rapid than anticipated,” interest rates may rise sooner than expected.

Silver futures for December delivery fell 1.7 percent to $19.152 an ounce. The price touched $19.11, the lowest since June 10.

On the New York Mercantile Exchange, palladium futures for December delivery dropped 2.9 percent to $883.25 an ounce, the biggest decline since June 12. The price touched $913, the highest since February 2001.

This year, the price has jumped 23 percent. Russia is the top producer, followed by South Africa.

The European Union is considering expanding sanctions against Russia amid the Ukraine conflict. President Vladimir Putin has retaliated against previous penalties by banning imports of some food products, while palladium trade hasn’t been affected.

Output in South Africa dropped following a five-month mine strike that ended in June.

Platinum futures for October delivery fell 1.1 percent to $1,408.90 an ounce, the biggest drop since July 31.

Trading in palladium and platinum was at least 50 percent above the average for the past 100 days, Bloomberg data showed.

Before it's here, it's on the Bloomberg Terminal.