Gold Slides to 8-Month Low as Fed Steepens Rate OutlookDebarati Roy and Nicholas Larkin
Gold futures tumbled to an eight-month low after the Federal Reserve raised its outlook for interest rates, crimping demand for an inflation hedge.
The metal is heading for its first quarterly drop this year as the U.S. economy strengthens. Even as the central bank stuck with its pledge to hold borrowing costs near zero percent for a “considerable time” after asset purchases end, policy makers yesterday projected a steeper increase in its benchmark rate next year.
The precious metal’s 60-day historical volatility is approaching to lowest since October 2010, according to data compiled by Bloomberg. Open interest in Comex futures and options is close to the lowest in five years, and money managers cut their bullish holdings for four straight weeks. U.S. jobless claims dropped to a two-month low, government data showed today.
“There is no interest in gold at a time when it’s clear that rates are going to start rising,” Tommy Capalbo, a broker at Newedge Group in New York, said in a telephone interview. “The economy is growing, and people don’t need a safe haven.”
Gold futures for December delivery fell 0.7 percent to settle at $1,226.90 an ounce at 1:39 p.m. on the Comex in New York, the biggest drop for a most-active contract since Sept. 8. The price touched $1,216.30, the lowest since Jan. 6.
The metal has declined 7.2 percent this quarter as the dollar rose to the highest since 2010 against a basket of 10 currencies. Inflation expectations, measured by the five-year Treasury break-even rate, reached the lowest since December today. Holdings in exchange-traded products backed by gold have slumped to the lowest since October 2009, data compiled by Bloomberg show.
In 2013, gold tumbled to halted a 12-year rally as the Fed prepared to cut monetary stimulus. The central bank yesterday reduced monthly bond purchases to $15 billion, keeping it on track to announce an end to the program in October. The policy makers also raised their median estimate for the federal funds rate at the end of 2015 to 1.375 percent from 1.125 percent in June.
“Expectations of higher policy interest rates going forward is gold-bearish,” James Steel, an analyst at HSBC Securities (USA) Inc., wrote in a note. “If the dollar remains firm, gold should stay on the defensive.”
Silver futures for delivery in December fell 1.2 percent to $18.517 an ounce. The price touched $18.27, the lowest since June 28, 2013.
On the New York Mercantile Exchange, platinum futures for delivery in October dropped 0.9 percent to $1,349.50 an ounce. The metal touched $1,340, the lowest since Dec. 26.
Palladium futures for delivery in December fell 0.9 percent to $831.65 an ounce.