Gold Posts Monthly Drop as Fed Rate Outlook Damps Its Appeal

  • Bullion prices settle with first August decline since 2009
  • Purchases through gold-backed funds have slowed this month

Gold capped its first monthly decline since May on growing expectation that the Federal Reserve will raise U.S. interest rates this year and as purchases through bullion-backed funds slowed.

It’s the first time gold has dropped in August since 2009, with the metal generally climbing on jewelry demand ahead of the wedding and festival season in India, the largest consumer after China. Prices slid 3.4 percent this month after surging 25 percent in the first half of the year as economic concerns fueled demand for the metal as a haven.

The pullback follows comments by Fed officials that lifted the dollar and prompted traders to boost bets on higher rates, which make bullion less competitive against interest-bearing assets. Purchases through exchange-traded products have slowed since holdings touched a three-year high on Aug. 11. The assets are up 25 metric tons this month, compared with increases of 55 tons in July and 110 tons in June.

“There’s ongoing concern about an upcoming Fed rate hike, even though expectations for September are fairly slim,” David Meger, the director of metals trading at High Ridge Futures in Chicago, said in a telephone interview. “The idea of the Fed rate hikes being on the table for December is bringing concerns across markets affected by higher interest rates, and obviously gold is one of those assets.”

Gold futures for December delivery dropped 0.4 percent to settle at $1,311.40 an ounce at 1:53 p.m. on the Comex in New York, falling for the second month this year.

Investors are now looking to U.S. jobs data due Friday for more clues on the strength of the economy. Traders see a 36 percent probability the Fed will raise borrowing costs next month, up from 18 percent at the start of August. The odds of an increase by December are at 60 percent. A report on private payrolls showed companies added workers to U.S. payrolls this month in line with projections, adding to signs of a steady labor market.

In other precious metals news:

  • The Bloomberg Intelligence Senior Gold Valuation Peers index dropped for a ninth straight session, the longest stretch since November 2013. Newmont Mining Corp. and Barrick Gold Corp. were among the biggest decliners in the index.
  • Silver futures for December delivery gained 0.2 percent to $18.707 an ounce on the Comex
  • On the New York Mercantile Exchange, palladium and platinum dropped.
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