Gold Drops To Two Month Low on Fed Rate Expectations

Gold fell to a two-month low in New York on the outlook for higher U.S. interest rates that strengthened the dollar. Platinum headed for the longest run of losses in 27 years in London.

Many U.S. policy makers raised the possibility they may boost rates sooner than anticipated, minutes of the Federal Reserve’s July meeting showed yesterday. The dollar climbed against 10 major currencies after the minutes and reached a six-month high today. Futures traders are seeing more chance of rising interest rates by the middle of next year, reducing gold’s allure because the metal only offers investors returns through price gains.

Bullion futures more than doubled from December 2008 to a record $1,923.70 an ounce in September 2011 as the Fed purchased debt and cut rates to an all-time low to spur economic growth. Prices slid 28 percent last year as the global economy improved and policy makers started reducing bond buying. The metal rose 6.6 percent this year, partly as unrest in Ukraine and the Middle East increased haven demand.

“Any hint that there’ll be more definitive action coming from the Fed is not going to be bullish for gold,” Tom Kendall, an analyst at Credit Suisse Group AG in London, said today by phone. “The market is still highly sensitive to expectations of what the Fed will do and when. The physical market is still extremely quiet.”

Gold for December delivery dropped 1 percent to $1,282.10 by 7:28 a.m. on the Comex in New York. It reached $1,274.90, the lowest since June 18, and a fifth day of losses would be the longest such run since June 2. Bullion for immediate delivery declined 0.8 percent to $1,281.26 in London, according to Bloomberg generic pricing.

via Bloomberg

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza