Gold Slumps to Four-Month Low as Bears Seize Control on Fed Bet

  • ABN-Amro warns break below 200-day average could end uptrend
  • Bullion going through liquidation phase, RJO’s Streible says

The Bullish Case for Gold

Gold fell to the lowest in almost four months and breached the critical 200-day moving average after jobless claims in the U.S. dropped to the second-lowest level since 1973, strengthening the case for an increase in interest rates.

Initial jobless claims declined by 5,000 to 249,000 in the week ended Oct. 1, a Labor Department report showed Thursday in Washington. Traders are pricing a 63 percent chance the Federal Reserve will raise rates in December, up from 52 percent a month ago. Higher rates curb the investment appeal of non-interest bearing gold.

Gold futures for December delivery slipped 1.2 percent to settle at $1,253 an ounce at 1:42 p.m. on the Comex in New York. Prices touched $1,252.50, the lowest for a most-active contract since June 8. The metal also broke below the 200-day moving average of $1,256.41, a level seen by some traders who study charts as a signal that prices will fall further. On Tuesday, futures slumped by the most in almost three years after prices fell below the 100-day moving average a day earlier.

Bears ‘in Control’

“It seems the bears are in control of the market now,” Phil Streible, a senior market strategist at RJO Futures in Chicago, said in a telephone interview. “Gold has through gone a little bit of a liquidation phase.”

For an explainer on how U.S. rates impact gold, click here

Gold has faltered after posting the best first half in almost four decades, which came amid optimism that borrowing costs in the U.S. will stay lower for longer, while other central banks boost stimulus. That helped send yields on trillions of government and corporate bonds below zero. As the market begins to price in the probability of rising rates, yields are increasing and the dollar strengthening, weakening the case for holding bullion.

This year’s uptrend in gold prices may be “over” once prices break below the 200-day moving average, Georgette Boele, a currency and commodity strategist at ABN Amro Bank NV in Amsterdam, said by e-mail.

While prices dropped, investors have been adding to holdings in exchange-traded funds. Assets climbed for a fourth day, to 2,037.5 metric tons on Wednesday, near the highest since 2013, data compiled by Bloomberg show.

In other metal news:

  • Silver futures also declined on the Comex in New York, while palladium and platinum slipped on the New York Mercantile Exchange.  
  • A gauge of 14 senior global gold producers fell 2.8 percent, a fourth straight decline, led by Kinross Gold Corp. and Yamana Gold Inc.
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