Photographer: Kerem Uzel/Bloomberg

Gold Falls to Lowest Since 2010 as Rising Dollar Curbs Demand

  • Probablility of Fed raising U.S. rates next month increases
  • Higher dollar cuts demand for gold as alternative asset

Gold fell to the lowest in five years as speculation that U.S. policy makers will raise interest rates next month helped boost the dollar, curbing the metal’s appeal as an alternative asset.

The greenback climbed as much as 0.3 percent against a basket of 10 currencies on Friday to near the highest since at least 2004. Odds that the Federal Reserve will increase rates next month for the first time since 2006 advanced to 72 percent on Friday, from 35 percent a month ago, Fed-fund futures data show.

Bets on higher rates have risen as a resilient U.S. labor market powers consumer spending, adding to signs that the economy may be robust enough to withstand higher rates. Tighter monetary policy reduces the allure of gold because it doesn’t pay interest, unlike competing investments. Assets in exchange-traded products backed by the metal have fallen to the lowest since 2009, while hedge funds are holding a net-short position.

“We haven’t seen the dollar at these levels for a very, very long time,” Bart Melek, the head of commodity strategy at TD Securities in Toronto, said in a telephone interview. “The market is expecting the Federal Reserve to be fully on the bandwagon.”

Gold futures for February delivery declined 1.3 percent to settle at $1,056.20 an ounce at 12:45 p.m. on the Comex in New York. Earlier, the price fell to $1,051.60, the lowest since February 2010.

Holdings in gold-backed ETPs fell for a sixth straight day through Wednesday to 1,493.5 metric tons, data compiled by Bloomberg show.

Silver futures for March delivery fell 0.9 percent to $14.048 an ounce on the Comex. On the New York Mercantile Exchange, platinum futures for January delivery fell 1 percent to $835.80, while palladium futures for March delivery slid 0.2 percent to $550.65 an ounce.

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