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Gold Falls As USD Regains Strength

Gold futures dropped to a six-week low after a government report showed improvement in the U.S. labor market, damping demand for a haven.

Fewer Americans filed applications for unemployment insurance benefits over the past month than at any time in more than eight years. Federal Reserve officials yesterday continued to pare monthly asset purchases, while repeating that they’re likely to keep interest rates low for a “considerable time” as they look for improvement in a “range” of labor indicators.

Gold prices are headed for a July decline after rallying 10 percent in the first half of the year, a gain that outpaced broad measures of commodities, equities and treasuries. While buying was fueled by tensions in Ukraine and the Middle East, signs of U.S. growth reduced the appeal of bullion as an alternative asset.

Today’s report “supports the view that the Fed will raise rates sooner than expected, and that’s the reason for the decline in gold prices here,” Blake Robben, a senior market strategist at Archer Financial Services in Chicago, said in a telephone interview. “Obviously, when they start raising rates, gold will not perform in that environment. It never has.”

Gold futures for December delivery lost 0.5 percent to $1,290 an ounce at 9:08 a.m. on the Comex in New York, after touching $1,285.90, the lowest since June 19.

Interest-rate increases may come “sooner and be more rapid than currently envisioned” if the labor market continues to improve more quickly than anticipated, Fed Chair Janet Yellen told lawmakers this month. The U.S. central bank tapered monthly bond buying by $10 billion yesterday, to $25 billion.

Bullion jumped 70 percent from December 2008 to June 2011 as the Fed bought debt and held borrowing costs at an all-time low. The metal tumbled 28 percent last year, the most in three decades, as signs of accelerating U.S. economic growth raised concern that the stimulus would end.

via Bloomberg [1]

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Alfonso Esparza

Alfonso Esparza [6]

Senior Currency Analyst at Market Pulse [7]
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
Alfonso Esparza

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