Gold Falls for Second Day as U.S. GDP Growth Crimps Haven Demand

Gold futures fell for the second straight day as the U.S. economy expanded more than estimated, crimping demand for the precious metal as an alternative investment.

The price dropped 2.2 percent last week on concern that the Federal Reserve will boost interest rates next year. Traders predict a 69 percent chance that the central bank will raise borrowing costs by September, futures data show. The U.S. economy expanded at a 5 percent annual rate in the third quarter, the biggest advance in 11 years.

The GDP report sent the Dow Jones Industrial Average to a record high. Gold is heading for a consecutive annual loss for the first time since 1998 after a plunge in oil prices reduced the metal’s appeal as an inflation hedge. The dollar’s rally against a basket of 10 currencies to a five-year high cut demand for bullion as a store of value.

“The dollar and the equities are attracting investors,” George Gero, a precious-metal strategist at RBC Capital Markets in New York, said in a telephone interview. “The Fed will be constantly weighing each piece of data to determine when it should raise rates.”

Gold futures for February delivery fell 0.2 percent to settle at $1,178 an ounce at 1:43 p.m. on the Comex in New York. Yesterday, the price dropped 1.4 percent, the biggest decline for a most-active contract since Dec. 5. Today, aggregate trading was 39 percent below the 100-day average for this time, according to data compiled by Bloomberg.

Gold Reserves

Fed officials last week dropped a pledge to keep borrowing costs near zero percent for a “considerable time,” replacing it with a promise to be “patient,” according to a statement.

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

Ukraine reduced gold reserves to the lowest since 2005 in November as Russia bought metal to boost holdings to the highest in at least two decades, International Monetary Fund data show.

Silver futures for March delivery rose 0.5 percent to $15.767 an ounce on the Comex.

Silver dropped 19 percent this year, while gold fell 2 percent.

On the New York Mercantile Exchange, platinum futures rose, while palladium slid.

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