Gold Founders as Prices Slump to Three-Month Low Against Oil

  • Bullion losing steam as investors price in higher rates
  • Rise in oil, dollar eroding gold’s appeal as alternative asset

What Happened to Gold Market Volatility?

Crude oil’s biggest monthly rally in five months is taking the limelight off of gold.

An ounce of gold bought about 26.9 barrels of crude oil on Monday, the smallest ratio in three months. While gold gained just 0.4 percent last month, oil jumped 7.9 percent as optimism build that OPEC will finally be able to trim a global glut. The rise in oil, along with the dollar, is eroding the appeal of bullion as an alternative asset.

The surge in crude comes as gold futures stumble on prospects for higher U.S. interest rates, which diminish demand for the metal as a store of value. Oil prices last week capped their biggest monthly gain since April after the Organization of Petroleum Exporting Countries agreed to trim supply for the first time in eight years.

“Gold has taken a back seat,” Bob Haberkorn, a senior market strategist at RJO Futures in Chicago, said in a telephone interview. “The production cuts from OPEC is pretty substantial new bullish news for oil. Gold is still looking for a new story.”

Gold futures for December delivery slipped 0.3 percent to settle at $1,312.70 an ounce at 1:39 p.m. on the Comex in New York. Crude oil futures for November delivery gained 1.3 percent to $48.88 a barrel on the New York Mercantile Exchange, taking the gold-oil ratio to the lowest since June 29.

The rally in bullion, which posted its best first half of the year in almost four decades, is losing steam amid mounting signs the U.S. economy is resilient enough to withstand an increase in borrowing costs. On Monday, a report from the Institute for Supply Management showed U.S. manufacturing expanded in September. The odds of the Federal Reserve raising U.S. interest rates by December rose to 60.2 percent on Monday from 59.3 on Friday.

In other precious metals:

  • Holdings in exchange-traded funds backed by gold added 1 metric ton to 2,032.3 tons on Friday, according to data compiled by Bloomberg.
  • Silver futures declined on the Comex, while platinum and palladium slipped on the Nymex.

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