Gold Bulls on Defensive as U.S. Fed Policy Seen ‘Changing Soon’

  • One rate hike won’t ‘seriously affect’ inflation path: Evans
  • Bulls that exited last week haven’t returned: RJO’s Haberkorn

The Likelihood of Three Fed Rate Hikes by End of 2017

The Federal Reserve has put gold bulls on the defensive again.

Gold’s open interest, a tally of outstanding contracts, hovered near a four-month low after investors cut their bullish bets last week. Fed Bank of Chicago President Charles Evans’s remarks in Sydney Tuesday bolstered expectations that borrowing costs will be rising soon, helping boost the dollar and weakening the case for owning non-interest bearing bullion.

The gold rally has fizzled after posting the best first half in almost four decades as traders begin to price in the increasing odds of interest rates hikes by year end. The chance of such a move by December rose to 68 percent from 59 percent at the end of September, according to Fed funds futures data compiled by Bloomberg. Last week, gold prices plunged the most in more than three years.

“Open interest has declined because of long positions liquidating last week on the big move down, and they haven’t come back into the market,” Bob Haberkorn, a senior market strategist at RJO Futures in Chicago, said in an e-mail. “What’s keeping gold lower for the most part have been comments since last week by various Fed members on a December rate hike, like what we heard from Evans last night.”

Prices Slip

Gold futures for December delivery slipped 0.4 percent to settle at $1,255.90 an ounce at 1:44 p.m. on the Comex in New York. On Oct. 7, prices touched $1,243.20, the lowest for a most-active contract since June 7. Futures have fallen for a seventh time in eight sessions.

The failure of prices to surge above the 200-day moving average of $1,259.16 has deterred bulls from returning to gold, Haberkorn said.

While Evans recognized that the U.S. economy probably isn’t at full employment and inflation remains below-target, he said policy “may well be changing soon,” repeating an observation he made last week. “One move would not seriously affect the continuing likelihood that inflation will move up,” he said. Minutes of the Sept. 20-21 FOMC meeting will be released on Wednesday in Washington.

  • Holdings in gold-backed exchange traded funds were little changed at 2,046.4 metric tons as of Monday, the highest since June 2013, according to data compiled by Bloomberg.
  • Silver futures fell on the Comex, while platinum and palladium futures slipped on the New York Mercantile Exchange.

— With assistance by Ranjeetha Pakiam, and Thomas Biesheuvel

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