Gold Halts Three-Day Rally Before Fed Releases Minutes

Gold prices fell after the Federal Reserve signaled it’s on course for the first interest-rate increase since 2006, boosting the dollar and eroding demand for the metal as an alternative asset.

“Most participants thought the reference to patience indicated that the committee was unlikely to begin the normalization process for at least the next couple of meetings,” according to the minutes of the central bank’s December meeting released today in Washington.

A rout in oil prices and the dollar’s rally against major currencies in the past six months crimped demand for gold. In 2014, the precious metal posted a consecutive annual decline for the first time since 1998 as gains in the U.S. economy signaled prospects for higher interest rates amid muted inflation.

“The surprising thing is that the Fed said it could normalize rates even though the pressure of disinflationary forces remain in the short term,” Michael Gayed, the chief investment strategist at Pension Partners LLC in New York, said in a telephone interview. “Higher rates cannot be good for gold.”

Gold for immediate delivery fell 0.3 percent to $1,214.78 an ounce at 2:50 p.m. in New York, according to Bloomberg generic prices. The metal gained 3.1 percent in the previous three sessions because of European economic concerns.

On the Comex in New York, gold futures for February delivery fell 0.7 percent to settle at $1,210.70 an ounce at 1:37 p.m.,before the Fed announcement. Aggregate trading was 22 percent below the 100-day average for for this time, according to data compiled by Bloomberg.

Inflation Concerns

The metal 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.

A rebalancing of commodity indexes may spur a drop in gold in the coming days, UBS Group AG said in a report. The changes are expected to be made from Jan. 8 through Jan. 14, leading some funds to sell metals to match the changes, the bank said.

“Some consolidation at this point is understandable,” UBS said. “Caution may be warranted here as a few risk events are in store for the market this week.”

Silver futures for March delivery fell 0.6 percent to close at $16.544 an ounce on the Comex. The price jumped 6.7 percent in the previous three sessions.

On the New York Mercantile Exchange, platinum futures for April delivery fell less than 0.1 percent to $1,220.90 an ounce. Palladium futures for March delivery declined 1 percent to $792.45 an ounce, the biggest drop since Dec. 16.

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