Gold Futures Drop as Dollar Gains Amid Improving U.S. Outlook

  • Traders price in a 52 percent chance of Fed rate hike in June
  • Holdings in exchange-traded funds rise to highest since 2014

Investors Moving Back to Gold Amid Global Economic Risks

Gold futures fell for the fifth time in six sessions as the dollar strengthened amid signs of an improving U.S. economic outlook, diminishing demand for the metal as a store of value.

The Bloomberg Dollar Index rebounded from the weakest since October. Traders are pricing in a 52 percent chance that the Federal Reserve will raise rates by June, up from 6 percent a month ago, according to Fed fund futures data compiled by Bloomberg. Higher rates hurt demand for gold, which becomes less competitive against interest-bearing assets.

Bullion has risen 17 percent this year as concerns that a slowdown on China would spread globally boosted the metal’s appeal as a haven. Traders are reassessing Fed rate expectations amid improvements in hiring and manufacturing in the U.S. Citigroup Inc.’s Economic Surprise Index, which measures data performance relative to market expectations, rose to the highest in almost four months.

“The dollar is showing a lot of strength, and obviously that’s gold bearish,” Tim Evans, the chief market strategist at Long Leaf Trading Group Inc. in Chicago, said in a telephone interview. “The economic view of the overall market has improved. And that’s what ultimately what led corrective price action that we had in the market.”

Gold futures for April delivery slid 1.1 percent to settle at $1,245.10 an ounce at 1:41 p.m. on the Comex in New York. Prices fell for a third straight year in 2015, as investors awaited the first increase in borrowing costs in almost a decade, which came in December.

“The dissipation of risk aversion lately and increased probability of U.S. interest-rate increases from June onward would cap upside potential in gold,” said Bernard Aw, a strategist at IG Asia Pte in Singapore. “For now, the $1,250 resistance-turned-support will be a key level to watch.”

  • Money managers’ net-long position in gold futures and options jumped 21 percent to 148,266 contracts in the week ended March 8, according to Commodity Futures Trading Commission data released three days later. That’s the highest since February 2015.
  • Investors added to holdings in exchange-traded funds backed by gold, with assets rising 2.4 metric tons to 1,738.3 tons on Friday, the highest since July 2014, according to data compiled by Bloomberg.
  • Silver futures also fell on the Comex, while platinum and palladium declined on the New York Mercantile Exchange
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