Gold Drops After Impressive GDP Growth in US

Gold futures headed for a second straight decline after a government report showed U.S. economic growth rebounded more than forecast last quarter, crimping demand for the metal as an alternative investment.

Gross domestic product rose at a 4 percent annualized rate, compared with a revised 2.1 percent drop in the first quarter, government data showed today. The median forecast in a Bloomberg survey of economists was for a 3 percent gain. The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, rose to the highest since March.

Through yesterday, gold climbed 8.2 percent this year as violence in the Middle East and Ukraine boosted demand for the metal as a haven. Faster economic growth gives the Federal Reserve more leeway to raise U.S. interest rates after tapering monetary stimulus. The central bank ends a two-day policy meeting today.

“Its a tug of war between strong economic numbers and increasing violence,” Miguel Perez-Santalla, sales and marketing manager at Heraeus Metals New York LLC, said in a telephone interview. “The dollar strength could put further pressure on gold.

Gold futures for December delivery fell 0.3 percent to $1,297.10 an ounce at 9:46 a.m. on the Comex in New York. Earlier, the price rose as much as 0.4 percent. Trading was 31 percent above the average for the past 100 days for this time, data compiled by Bloomberg show.

The metal tumbled 28 percent in 2013, ending a 12-year rally, on expectations that the Fed would scale back stimulus as the economy recovers. The central bank will probably cut its monthly asset purchases by another $10 billion to $25 billion, a Bloomberg News survey shows.

via Bloomberg

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

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