Gold Trades Near 18-Week Low on Concern Fed Will Drop ‘Patient’Debarati Roy and Eddie van der Walt
Gold traded near an 18-week low on concern that Federal Reserve policy makers will drop a pledge to be “patient” on raising interest rates.
Almost 90 percent of economists surveyed by Bloomberg predict Fed officials will remove the phrase in a statement due Wednesday at the conclusion of their meeting. Gains for the labor market have increased speculation that the U.S. central bank is getting closer to raising rates, cutting gold’s allure because the metal generally offers returns only through price gains.
Investors have exited gold in anticipation of an increase for borrowing costs, which lifts the appeal of assets with better yield prospects such as bonds and equities. Holdings of the metal through exchange-traded products fell for 15 straight sessions, the longest streak since January 2014.
“If the patient word is dropped, we could see further downside in gold,” Edward Dempsey, the chief investment officer at Pension Partners LLC in New York, said in a telephone interview. “I don’t think it’s fully priced in. Like most commodities, gold has been having a rough time because of the dollar, and we may see an increase in volatility since those long in gold may look for an exit.”
Gold futures for April delivery declined 0.1 percent to $1,147.10 an ounce at 10:22 a.m. on the Comex in New York. On Tuesday, the price touched $1,141.60, the lowest since Nov. 7, when the metal reached a four-year low of $1,130.40.
About $5 billion has been wiped from the value of global ETPs backed by bullion in March, heading for the biggest monthly drop since September. Investors sold the metal, a traditional hedge against inflation, amid confidence that the Fed will lift benchmark rates fast enough to prevent consumer prices from accelerating as the economy rebounds.
The prospect of higher interest rates means that gold will post a third consecutive annual decline this year, according to Artur Passos, who produces the metals outlook at Itau Unibanco Holding SA and was the most accurate among 20 forecasters, data compiled by Bloomberg Rankings show. It would be the longest losing streak for futures since 1998.
“The expectation that the Fed will remove the ‘patient’ language from its statement is what is being priced in at the moment,” Jonathan Butler, a precious metals analyst at Mitsubishi Corp. International (Europe) Plc, said by phone from London. ETP buyers are often seen as momentum traders who follow prices “but of course, sales bring metal back to the market and that in turn has price implications,” he said.
Also on the Comex, silver futures for May delivery slipped 0.6 percent to $15.485 an ounce.