Gold Prices Cap Longest Slump in Five Weeks on Fed Rate Outlook

Gold futures posted the longest slump in five weeks on concern that the Federal Reserve is moving closer to raising U.S. interest rates, crimping demand for the precious metal as an alternative investment.

In the third quarter, gold fell 8.4 percent as the U.S. economy gained. The Fed begins a two-day meeting tomorrow and policy makers will debate the pace of raising borrowing costs after holding its benchmark rate close to zero percent since 2008.

Last month, gold dropped to a four-year low as equities surged to a record and oil prices entered a bear market. Jeffrey Currie, head of commodity research at Goldman Sachs Group Inc, said last week that the metal will drop as the U.S. economy improves. Economists and Fed officials surveyed by Bloomberg expect higher rates in 2015.

“This week will be all about the Fed,” Phil Streible, a senior commodity broker at R.J. O’Brien & Associates in Chicago, said in a telephone interview. “Some investors are waiting on the sidelines until they get a clearer picture from the Fed.”

Gold futures for February delivery fell 1.2 percent to close at $1,207.70 an ounce at 1:46 p.m. on the Comex in New York. The price capped a fourth straight decline, the longest slump since Nov. 6.

Fed Signal

The Fed “may change the wording of its communique and signal an interest-rate hike in the near future,” Commerzbank AG analysts including Daniel Briesemann said in a report. “The gold price is likely to come under pressure ahead of the rate hikes and pull silver down with it.”

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

Gold surged 70 percent from December 2008 to June 2011 as central banks increased money supply on an unprecedented scale, spurring concerns that inflation will accelerate. The metal tumbled 28 percent in 2013, the biggest drop in three decades, amid gains for the U.S. economy.

Today, the dollar rose as much as 0.3 percent against a basket of 10 currencies. On Dec. 8, the greenback reached a five-year high.

On Dec. 12, holdings in exchange-traded products backed by gold fell 1.5 metric tons to 1,611.3 tons, data compiled by Bloomberg show. On Dec. 8, they reached the lowest since May 2009.

Last week, gold climbed 2.7 percent, the most since June, as the dollar declined and global stocks tumbled amid a slump in energy prices.

In the week ended Dec. 9, money managers’ net-long position in Comex futures and options rose for the fourth straight time, the longest run since July, government data showed on Dec. 12.

Silver futures for March delivery declined 2.9 percent to $16.563 an ounce on the Comex, the biggest drop for a most-active contract since Nov. 28.

On the New York Mercantile Exchange, platinum and palladium also slid.

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