Gold Drops After Fed Hints At Rate Hike Next Year

Gold fell to the lowest in almost three weeks in New York after the U.S. Federal Reserve indicated that it will raise interest rates next year, curbing demand for a store of value. Silver declined.

Bullion fell 1.3 percent yesterday as U.S. policy makers cut monthly bond-buying by $10 billion and said they will slow purchases in “further measured steps.” Central-bank officials estimated the benchmark rate target will be 1 percent at the end of 2015 and 2.25 percent a year later. That compares with their December estimate of 0.75 percent and 1.75 percent. The dollar reached a one-month high versus 10 major currencies.

Gold climbed 70 percent from December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system and cut interest rates to boost the economy. Prices, up 10 percent this year, reached a six-month high of $1,392.60 an ounce on March 17 as turmoil over Ukraine left Russia and the West embroiled in their worst confrontation since the Cold War.

The Fed’s tone “was interpreted as being slightly more hawkish than expected, contributing to a sharp rise in the dollar and pressuring gold,” Edward Meir, an analyst at INTL FCStone Inc. in New York, said in a report written yesterday. “Gold will likely regroup and push higher once the Ukrainian crisis moves on to a more serious stage.”

Gold for April delivery fell 1.3 percent to $1,323.60 by 7:54 a.m. on the Comex in New York. It reached $1,321.30 today, the lowest since Feb. 28. Futures volume was 59 percent above the average for the past 100 days for this time of day, data compiled by Bloomberg showed. Bullion for immediate delivery declined 0.5 percent to $1,323.18 in London.

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