Gold Tumbles With Silver to Lowest Since 2010 on Dollar

Gold and silver slumped to the lowest since 2010 as the dollar strengthened after the Bank of Japan unexpectedly boosted stimulus and the Federal Reserve ended asset purchases this week.

The Fed is weighing the timing of interest-rate increases as other central banks add to stimulus to bolster their economies. The Bank of Japan today raised its annual target for enlarging the monetary base to 80 trillion yen ($723 billion), up from 60 trillion to 70 trillion, sending the yen to a six-year low against the dollar. Gold yesterday erased the year’s advance after U.S. gross domestic product beat estimates.

“Japan basically pushed gold over the edge as it triggered a major risk-on move,” Ole Hansen, head of commodity strategy at Saxo Bank A/S in Copenhagen, said by e-mail today. Japanese stimulus, the Fed decision to stop bond buying and dollar strength have “been more than the market could cope with this week,” he said.

Gold futures for December delivery fell 2.3 percent to $1,171.60 an ounce at 1:50 p.m. on the Comex in New York, after touching $1,160.50, the lowest for a most-active contract since July 2010. Silver futures for the same delivery month dropped as much as 4.8 percent to $15.635, the lowest since February 2010.

Gold dropped 4.9 percent this week, the most since September 2013. The metal also declined 3.3 percent in October to post consecutive monthly losses for the first time this year. Prices have lost 2.6 percent in 2014.

Interest Rates

Gold rose 70 percent from December 2008 to June 2011 as the Fed bought debt and held borrowing costs near zero percent. Prices slumped 28 percent last year, the most in three decades, on expectation that the central bank would scale back its bond-buying program that was put in place to fuel growth while failing to stoke inflation.

The U.S. central bank, which has held its key rate at zero to 0.25 percent since 2008, this week cited an improving job market in deciding to end bond buying, while maintaining a commitment to keep rates low for a considerable time. It also said inflation is running below its 2 percent target.

“Precious metals cratered, hit by a double-whammy of the rather hawkish Fed policy statement, coupled with a stronger-than-expected U.S. GDP report,” Edward Meir, an analyst at INTL FCStone Inc., wrote in a note. “Gold is again confronting the specter of a stronger dollar, rising equity prices and tame inflation, a trifecta that does not bode well for price prospects going into 2015.”

London Prices

Gold for immediate delivery in London tumbled 2.3 percent to $1,171.41, according to Bloomberg generic pricing. The precious metal earlier touched $1,161.35, the lowest since July 2010. Silver slid as much as 4.3 percent to $15.7908, the lowest since February 2010.

On the New York Mercantile Exchange, palladium futures for delivery in December rose 1.4 percent to $791.80 an ounce, advancing for the 10th time in 11 sessions. Prices are up 10 percent this year.

Platinum futures for January delivery declined 0.9 percent to $1,235.20 an ounce, extending the week’s drop to 1.3 percent. The metal is down 10 percent this year.

Concern that gold demand may falter in the world’s largest users also hurt prices. China asked investigators to probe a sevenfold surge in September’s precious-metals exports. In India, the biggest consumer after China, imports are set to drop in October after a more than fourfold jump last month.

Oil Collapse

The collapse of oil prices into a bear market amid rising global supplies has also cut inflation concerns. The chances of bullion dropping to $1,000 are increasing as cheaper energy “means lower inflation and adds to the bearish gold story,” said Michael Haigh, head of commodities research at Societe Generale SA, who correctly forecast the metal’s 2013 rout.

The bank isn’t alone in predicting more losses for gold, which is Morgan Stanley’s least preferred metal. Jeffrey Currie, Goldman Sachs Group Inc.’s head of commodities research who also correctly forecast 2013’s slump, said last month that the worst isn’t over yet for gold. He expects prices to drop to $1,050 by the end of year.

Holdings in the SPDR Gold Trust shrank for a third day to 741.2 tons yesterday, the least since October 2008. The Bloomberg Dollar Spot Index, a gauge against 10 major trading partners, rose today to the highest since 2009.

“People are generally looking at the direction of the dollar,” said Wallace Ng, a Shanghai-based trader at Gemsha Metals Co. “A higher dollar depresses prices, and sentiment in the gold market was already weak because of the Fed.”

(An earlier version of this story was corrected to reflect the right amount of the scope of BoJ expansion in second paragraph.)

(Corrects settlement price in fourth paragraph.)
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