Gold Close to Erasing This Year’s Gains on Rising Rates

04:00 PM @ Friday - 03 October, 2014
Gold declined in London, with the metal almost erasing this year’s gains as the outlook for higher U.S. interest rates amid an improving economy curbs demand for the metal. Platinum dropped to a five-year low.

Gold fell 0.8 percent this week, cutting its 2014 increase to 0.6 percent. The Bloomberg Dollar Spot Index, which reached a four-year high this week, rose before a U.S. report that economists say will show employers added the most jobs in three months. Improving U.S. data has added to speculation that the Federal Reserve will raise interest rates next year.

An accelerating U.S. economy means investors are shunning the metal even after the U.S. expanded sanctions against Russia and stepped up its campaign against Islamic State. Rising interest rates reduce gold’s allure because the metal generally only offers investors returns through price gains, while a stronger dollar typically cuts demand for a store of value.

“The Fed’s tightening policy, the end of tapering obviously at the next meeting and the start of rate hikes next year is creating significant head winds,” Ivan Szpakowski, a Hong Kong-based analysts at Citigroup Inc., said in an interview on Bloomberg Television today. Prices may be supported if macroeconomic concerns and geopolitical tensions flare, he said.

Gold for immediate delivery declined 0.5 percent to $1,208.66 an ounce by 9:20 a.m. in London, according to Bloomberg generic pricing. It reached $1,204.57 on Sept. 30, the lowest since Jan. 2. Gold for December delivery fell 0.5 percent to $1,208.80 on the Comex in New York.

Trading Volume

Futures trading volume was 16 percent below the average for the past 100 days for this time of day, data compiled by Bloomberg show.

U.S. employers added 215,000 jobs in September, up from 142,000 in August, according to the median estimate of economists surveyed by Bloomberg News before Labor Department figures due today.

Traders saw a more than 70 percent chance the Fed will raise its target for overnight lending between banks by its September 2015 meeting, futures data compiled by Bloomberg showed as of yesterday.

Holdings in gold-backed exchange-traded products are at the lowest in five years. They fell 2.3 metric tons to 1,679.5 tons yesterday, data compiled by Bloomberg show.

Silver for immediate delivery fell 0.5 percent to $17.0293 an ounce in London. Holdings in silver ETPs rose 124.3 tons yesterday, the most since May, to a record 20,182.2 tons, data compiled by Bloomberg show.

Platinum Slips

Palladium lost 0.2 percent to $766.83 an ounce, after touching $763.25 two days ago, the lowest since April 7. It’s down for a fifth week in the longest such run of losses since April 2012.

Platinum dropped 1.1 percent to $1,254 an ounce. It slid to as low as $1,241.63 today, the lowest since September 2009. Prices slipped 3.6 percent this week, and a fifth weekly decline would be the longest stretch since December.

“Weak gold prices have also weighed on platinum,” James Steel, an analyst at HSBC Securities (USA) Inc., wrote in a note. “The technical momentum is lower and we believe the fundamental argument, while sound in the long term, will not necessarily bring buyers in immediately.”
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