Gold Rises As Growth Fears More Real Than Hike Expectations

Gold headed for the longest rally since August as retail sales in the U.S. dropped more than forecast, spurring speculation that interest rates will remain low and boosting demand for the metal as a haven.

Consumer purchases decreased 0.3 percent in September, compared with a 0.6 percent gain in the prior month and the median forecast for a 0.1 percent decline in a Bloomberg survey of economists, a government report showed today. Bullion reached a one-month high amid concerns that global economic growth is ebbing.

Last week, gold jumped the most since June as Federal Reserve officials indicated a worldwide slowdown may delay U.S. interest-rate increases. The central bank will release its Beige Book report of regional anecdotal information about the U.S. economy today. The metal traded today at the highest price relative to crude oil in 17 months as signs of weakening growth help push crude into a bear market.

“The retail sales numbers were disappointing, and people are getting worried about the growth momentum coming to a halt” in the economy, Phil Streible, a senior commodity broker at R.J. O’Brien & Associates in Chicago, said in a telephone interview. “We could see some safe-haven buying today.”

Gold futures for December delivery rose 1.2 percent to $1,249.20 an ounce at 9:41 a.m. on the Comex in New York, heading for a third straight gain and the longest rally since Aug. 14. Trading was more than double the average for the past 100 days for this time, data compiled by Bloomberg show.

Holdings in exchange-traded products backed by the precious metal fell to a five-year low last week. Gold dropped to this year’s low of $1,183.30 on Oct. 6 as signs of an improving U.S. economy added to the case for higher borrowing costs.

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 metal climbed 70 percent from December 2008 to June 2011 as the Fed bought debt and held borrowing costs near zero percent, boosting inflation concerns.

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