Gold Drops Most in Three Weeks on Outlook for Reduced Stimulus

Jan 21, 2014 2:27 pm ET

Jan. 21 (Bloomberg) -- Gold fell the most in three weeks as speculation that the Federal Reserve will continue reducing stimulus boosted the dollar and crimped the metal’s appeal as an alternative investment.

The dollar extended a rally to the highest in more than four months against a basket of 10 currencies. The Fed reduced its monthly bond purchases to $75 billion from $85 billion in December, and will probably cut buying by $10 billion at each meeting to end the program this year, according to a Jan. 10 Bloomberg survey. The central bank next meets Jan. 28-29.

“The next Fed meeting and the dollar’s strength are working against gold,” Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago, said in a telephone interview. “Gold will remain under pressure.”

Gold for immediate delivery fell 1 percent to $1,242.30 an ounce at 1:59 p.m. New York time, heading for the biggest drop since Dec. 30.

On the Comex in New York, gold futures for February delivery lost 0.8 percent to settle at $1,241.80. Trading was 40 percent higher than the 100-day average for this time of day, data compiled by Bloomberg show. U.S. markets were closed yesterday for a public holiday.

The precious metal slid 28 percent last year, the most since 1981, after some investors lost faith in the metal as a store of value. Gold rose 70 percent from December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system.

Banks are considering an overhaul of London’s century-old gold benchmark used by miners, jewelers and central banks, according to a person with knowledge of the process, who asked not to be identified because the review isn’t public.

Silver for immediate delivery fell 2.2 percent to $19.8759 an ounce. Palladium lost less than 0.1 percent to $748.45 an ounce. Platinum slipped 1.2 percent to $1,451.63 an ounce. The metal reached $1,472 yesterday, the highest since Nov. 7, as some mine workers plan to strike in South Africa.

--With assistance from Phoebe Sedgman in Melbourne, Glenys Sim in Singapore and Luzi Ann Javier in New York. Editors: Joe Richter, Patrick McKiernan