Gold Drops as Fed Rate Speculation Rises Ahead of Next Week

Gold fell to the lowest since January on speculation that the Federal Reserve will raise U.S. interest rates sooner than forecast, crimping demand for a hedge against inflation. Silver slumped to a 14-month low.

More than $5.1 billion has wiped from the value of exchange-traded products backed by bullion since June 30. Money mangers cut their bullish wagers on the metal for three straight weeks, while open interest in New York futures and options is near the lowest in five years.

Gold has dropped 11 percent from this year’s high as the U.S. economy gained traction and the dollar strengthened, cutting demand for bullion as an alternative asset. Demand for a haven declined after tensions in Ukraine and the Middle East eased. Global holdings in ETPs backed by the metal fell in four of the past five months.

“It’s hard to get excited about gold in this current environment when the dollar is rising and the political tensions have eased,” Scott Gardner, who helps manage $450 million at Verdmont Capital SA in Panama City, said in a telephone interview. “People don’t want gold when rates are expected to rise, while inflation has remained muted.”

Gold futures for December delivery fell 0.7 percent to $1,237.10 an ounce at 11:44 a.m. on the Comex in New York, after touching $1,235.30, the lowest for a most-active contract since Jan. 23.

On March 17, gold reached $1,392.60, the highest since Sept. 9, 2013.

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