Gold Posts Longest Slump Since Mid-March on Fed Rate Concerns

Updated on
  • Fed officials talking up rate increase, El-Erian says
  • Silver drops on Comex, as palladium, platinum fall on Nymex

Gold Prices Are Still Solid

Gold fell, capping the longest slump in more than two months, as renewed concerns that the Federal Reserve will soon raise interest rates dimmed the demand outlook for precious metals as a store of value.

The odds of a rate increase in June climbed to 30 percent, from 4 percent a week ago, Fed fund futures data show. Mohamed El-Erian, the chief economic adviser at Allianz SE and a Bloomberg View columnist, wrote on Twitter Sunday that Fed officials “continue to talk up” an increase, as two more policy makers joined the chorus in signaling a move is looming. Higher rates curb demand for gold because it doesn’t offer yields or dividends.

Bullion has rallied 18 percent this year on bets that the Fed would be slow to raise rates amid risks to global growth. Expectations started to turn last week, as policy makers in separate speeches indicated the central bank may be moving closer to boosting rates at one of its next two meetings. Minutes of the Fed’s April 26-27 meeting released Wednesday used the word “June” six times in a policy context.

“Obviously, as higher interest-rate concerns linger, it pressures commodity prices across the board,” David Meger, the director of metals trading at High Ridge Futures in Chicago, said in a telephone interview. “Gold, being an non-interest-bearing asset, struggles to perform in a higher interest-rate environment.”

Gold futures for June delivery fell 0.1 percent to $$1,251.50 an ounce on the Comex in New York, a fourth straight loss in the longest slump since March 16.

  • Silver futures for July delivery declined 0.7 percent on the Comex in New York, while palladium and platinum fell on the New York Mercantile Exchange.