Gold Close to Erasing Gains for Year on Outlook for Rates

Gold futures fell in New York, moving closer to erasing this year’s gains as the outlook for an improving U.S. economy and higher interest rates curbs demand for the metal as an alternative investment.

The accelerating economy means investors are shunning gold even after the U.S. expanded sanctions against Russia and ramped up its military campaign to combat Islamic State in Iraq. Yesterday, the dollar climbed to the highest since June 2010 against a basket of 10 major currencies, combining with prospects for higher rates to erode the appeal of the metal as a hedge against inflation.

Gold dropped as much as 0.5 percent today. ECB President Mario Draghi didn’t disclose the size of a monetary stimulus plan after announcing that the central bank would buy covered bonds and asset-backed securities for at least two years.

“The European Central Bank chose not to announce a quantitative easing plan,” James Cordier, the founder of Optionsellers.com in Tampa, Florida, said in a telephone interview. “People thought they were going to print euros.”

Gold futures for December delivery fell less than 0.1 percent to settle at $1,215.10 an ounce at 1:51 p.m. on the Comex in New York. On Sept. 30, the price touched $1,204.30, the lowest for a most-active contract since Jan. 2. The metal settled at $1,202.30 on Dec. 31.

Macro Outlook

Rising interest rates reduce gold’s allure because the metal generally only offers investors returns through price gains.

“The stronger U.S. macro outlook is driving expectations for a U.S. interest rate hike, which is supporting the dollar” and hurting gold, David Wilson, an analyst at Citigroup Inc. in London, said in a telephone interview. “You’d expect to see some bargain hunting at these lower prices, but whether that will be truly supportive is hard to say.”

Economists surveyed by Bloomberg expect U.S. economic growth to accelerate next year. American employers probably added 215,000 jobs in September, economists expect data to show tomorrow. Payrolls rose 142,000 in August.

This year, gold has pared gains of as much as 16 percent that were fueled partly by tensions in Ukraine and the Middle East. Yesterday, global holdings in exchange-traded products backed by the metal fell 2.4 metric tons to 1,681.7 tons, the lowest in five years, according to Bloomberg data.

China, India

Demand from China, the world’s biggest consumer, and India, the second-biggest, may increase from next week following public holidays, Afshin Nabavi, a senior vice president at bullion refiner MKS (Switzerland) SA in Geneva, said in a telephone interview.

Sales from Australia’s Perth Mint climbed 89 percent in September to the highest in almost a year, according to data from the mint compiled by Bloomberg News. Gold-coin sales by the U.S. Mint more than doubled in September to the highest since January.

Silver futures for December delivery fell 1.2 percent to $17.047 an ounce. On Sept. 30, the price touched $16.85, the lowest since March 26, 2010.

On the New York Mercantile Exchange, platinum futures for January delivery fell 1.5 percent to $1,270.40 an ounce. Yesterday, the price touched $1,263.60, the lowest since Sept. 8, 2009.

Palladium futures for December delivery dropped 2 percent to $768.65 an ounce. Yesterday, the metal touched $763.90, the lowest since April 7.

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