Gold Falls As Fed Raises its Rate Outlook

Gold futures tumbled to an eight-month low after the Federal Reserve raised its outlook for interest rates, crimping demand for an inflation hedge.

Bullion is heading for its first quarterly drop this year as the U.S. economy strengthens. Even as the central bank stuck with its pledge to hold borrowing costs near zero percent for a “considerable time” after asset purchases end, policy makers yesterday projected a steeper increase in its benchmark rate next year.

The precious metal’s 60-day historical volatility is near the lowest since October 2010, according to data compiled by Bloomberg. Open interest in New York futures and options is holding near the lowest in five years, while money managers cut their bullish holdings for four straight weeks. U.S. jobless claims dropped to a two-month low, government data showed today.

“There is no interest in gold at a time when it’s clear that rates are going to start rising,” Tommy Capalbo, a broker at Newedge Group in New York, said in a telephone interview. “The economy is growing, and people don’t need a safe haven.”

Gold futures for December delivery fell 1.2 percent to $1,220.90 an ounce at 9:56 a.m. on the Comex in New York, heading for the biggest loss since Sept. 2. Prices reached $1,216.30, the lowest for a most-active contract since Jan. 6.

The metal declined 7.6 percent this quarter as the dollar rose to the highest since 2010 against a basket of 10 currencies. Inflation expectations, measured by the five-year Treasury break-even rate, reached the lowest since December today. Holdings in gold-backed exchange-traded products are at the lowest since October 2009, data compiled by Bloomberg show.

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