Gold, Metals Slide as Bets on Higher U.S. Rates Erode Demand

Updated on
  • Governor Lael Brainard is scheduled to speak in Chicago Monday
  • Bullion posts 4-day skid in longest stretch in two months

Is the Fed Trying to Prime Market for a Hike?

Gold futures fell for a fourth straight session and nickel led a selloff in industrial metals amid concern that the Federal Reserve is moving closer to raising U.S. interest rates.

Fed Governor Lael Brainard urged prudence in tightening monetary policy, even as the economy is making gradual progress to achieving the central bank’s goals. The speech was the last scheduled appearance by a central banker before this month’s policy meeting, and came after Boston Fed President Eric Rosengren said the economy could overheat if policy makers wait too long.

Odds of an interest rate hike this year were at 57 percent, up from 36 percent at the start of August. Higher rates reduce the appeal of commodities such as gold and copper, which don’t pay interest or offer returns like assets such as bonds or equities.

“The metals are under a lot of pressure right now,” Phil Streible, a senior market strategist at RJO Futures in Chicago, said in a telephone interview. “Today’s one of the last days Fed officials can speak before they go into their quiet period, so it seemed like coming into this time frame they were very vocal about raising rates.”

Gold futures for December delivery slid 0.7 percent to settle at $1,325.60 an ounce at 1:40 p.m. on the Comex in New York. The fourth straight loss is the longest slump in two months.

Gold’s Appeal

Bullion has gained 25 percent in 2016 as a slowdown in global growth and the U.K.’s vote to exit the European Union boosted the metal’s appeal as a haven. Investors will be drawn to the metal even if the Fed lifts rates, as borrowing costs will still be near historic lows, David Mazza, the head of exchange-traded-fund and mutual-fund research at State Street Global Advisors, said in an interview on Friday.

An Bloomberg Intelligence index of 14 gold-mining companies advanced on Monday, helped by gains in shares of Newmont Mining Corp. and Vancouver-based Goldcorp Inc.

“Over the past couple of weeks, we’ve seen some pretty deep down days for the equities without a big move in gold,” said Andrew Kaip, an analyst with BMO Capital Markets. “We’re looking at increased volatility: It’s working in favor of the gold equities today. It may not tomorrow.”

In other metals news:

  • On the London Metal Exchange, aluminum, zinc, lead and tin fell, while copper gained. Nickel slid 2.8 percent, its biggest decline in a month. In New York, copper futures for delivery in December advanced 0.4 percent to $2.10 a pound on the Comex.
  • A gauge of 18 industrial-metals producers tracked by Bloomberg Intelligence fell 0.7 percent, with BHP Billiton Ltd. and Anglo American Plc among the biggest losers.
  • Silver futures for December delivery fell 1.9 percent to $19 an ounce on the Comex.
  • On the New York Mercantile Exchange, platinum and palladium dropped.