Gold Retreats as Traders Refocus on Rate Rise, Dollar Strength

Gold retreated from its biggest weekly rally since September as the dollar rose and traders refocused their attention on the outlook for rising U.S. interest rates.

Atlanta Federal Reserve President Dennis Lockhart said the conditions for a rate rise are very satisfactory and that the U.S. economy is on a solid, moderate growth path. The Bloomberg Dollar Spot Index headed for the biggest gain in a month. Higher rates cut the appeal of the metal as the U.S. currency gains and because bullion doesn’t pay interest, unlike competing assets.

Gold jumped 2.6 percent last week, partly on speculation that the prospect of increasing borrowing costs had already been factored into prices. Banks including Citigroup Inc. and Goldman Sachs Group Inc. have forecast that bullion will continue to decline over the next year. The metal is heading for a third straight annual loss, the longest stretch since 1998. Fed policy makers will meet next week.

“The closer we get to the liftoff, the more squeamish traders are getting,” George Gero, a vice president of global futures at RBC Capital Markets in New York, said in a telephone interview. “It’s giving the dollar a lot more room to grow and it weakens gold.”

Gold futures for February delivery dropped 0.8 percent to settle at $1,075.20 an ounce at 1:45 p.m. on the Comex in New York, falling for the first time in three sessions.

The net-bearish position in gold futures and options reached 17,949 contracts in the week ended Dec. 1, according to Commodity Futures Trading Commission data released three days later. That’s the most since the data began in 2006.

“In light of uneven chart patterns and uninspiring fundamentals, gold’s upside potential is limited,” Edward Meir, an analyst at INTL FCStone Inc., wrote in a monthly report. “What is giving us pause, at least in the short term, is the fact the fund positions have hit record short readings as of last week, meaning that the current move could run for a little while longer before it fizzles. In December, look for a $1,050-$1,125 trading range.”

Silver futures for March delivery fell 1.3 percent to $14.332 an ounce on the Comex. On the New York Mercantile Exchange, platinum futures for January delivery fell 2 percent to $863.20 an ounce, the biggest drop in four weeks, and palladium futures for March delivery dropped 2 percent to $555.45 an ounce.

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