Gold Whipsawed as Fed’s Williams Flags Support for Rate Increase

The split among Federal Reserve officials on whether to boost U.S. borrowing costs is whipsawing gold again.

Futures gained Thursday, a day after the July Fed minutes were released showing policy makers are divided on rates, only to swing to a loss Friday. Comments from Fed Bank of San Francisco President John Williams after gold futures closed on Thursday revived the bearish sentiment on the precious metal, paring this week’s gains.

The rally that sent gold to its best first half in almost four decades is slowing amid signs the U.S. economy is resilient enough to face an increase in interest rates, despite risks to global growth. Fueling that speculation are voices from policy makers who favor the rate hike, including Williams and New York Fed President William Dudley. Their comments boosted the dollar, curbing the appeal of commodities for holders of other currencies.

“Today, gold suffers from Fed indecision, pulled down by higher rate outlook fostered by many Fed speakers” George Gero, a managing director for RBC Wealth Management in New York, said in an e-mail. “We need higher open interest, higher closes, higher moving averages to attract asset allocators.”

Gold futures for December delivery slid 0.8 percent to settle at $1,346.20 an ounce at 1:39 p.m. on the Comex in New York, paring this week’s gain to 0.2 percent.

Williams said Thursday it makes sense to get back to a pace of gradual increases, preferably sooner rather than later. On Tuesday, Dudley said the Fed could potentially raise interest rates as soon as next month, while Atlanta Fed President Dennis Lockhart said he’s confident that U.S. economic growth is accelerating, setting the stage for at least one increase in interest rates this year.

“The market remains very twitchy around anything that relates to the Fed,” said Neil Meader, an analyst at Metals Focus Ltd. in London. “This period of consolidation we’ve seen in prices is a reflection of the lack of clarity on when the next increase will occur.”
In ETFs and other metals:

• Holdings in exchange-traded products backed by bullion slipped 0.1 percent to 2,027.6 metric tons, a second straight decline, according to data compiled by Bloomberg as of Thursday.
• Silver futures also fell on the Comex while platinum and palladium futures slipped on the New York Mercantile Exchange.
• A gauge of 14 senior global gold producers tracked by Bloomberg Intelligence dropped 1.3 percent, poised for a 6 percent decline this week, the worst since May 27. Yamana Gold Inc. and Sibanye Gold Ltd. led losses in the index

— With assistance by Ranjeetha Pakiam