Gold Drops Most in Five Weeks on Bets Fed Will Taper Stimulus

Jan 28, 2014 3:17 pm ET

Jan. 28 (Bloomberg) -- Gold futures fell the most in five weeks on speculation that the Federal Reserve will scale back U.S. monetary stimulus, damping demand for the precious metal as an alternative investment.

Fed policy makers, who start a two-day meeting today, may reduce asset purchases by $10 billion at each meeting to end the program this year, economists in a Bloomberg survey have forecast. Gold has dropped 24 percent in the past 12 months, while the Standard & Poor’s 500 Index of equities has climbed 19 percent.

“The Fed will very likely introduce additional taper action tomorrow,” Bart Melek, the head of commodity strategy at TD Securities in Toronto, said in a telephone interview. “Some people want to unwind positions before the announcement.”

Gold futures for April delivery fell 1 percent to settle at $1,250.50 an ounce at 1:53 p.m. on the Comex, the biggest drop for a most-active contract since Dec. 19. Trading was 71 percent higher than the average in the past 100 days for this time, according to data compiled by Bloomberg.

Yesterday, the price dropped 0.1 percent after reaching $1,280.10, the highest since Nov. 18.

In December, the Fed cut monthly bond purchases to $75 billion from $85 billion as the economy gained.

Platinum futures for April dropped 0.8 percent to $1,409.40 an ounce on the New York Mercantile Exchange. The meal dropped for the third straight session, the longest slump in six weeks.

The world’s biggest platinum producers built inventories to last as long as eight weeks, helping to weather a strike that has crippled mines in South Africa, the source of 70 percent of global supplies.

Palladium futures for March delivery declined 0.8 percent to $716.50 an ounce. The price fell for the fourth straight session, the longest slump in almost 11 weeks.

Silver futures for March delivery fell 1.5 percent to $19.503 an ounce on the Comex. Earlier, the price touched $19.455, the lowest since Jan. 9.

--With assistance from Agnieszka Troszkiewicz in London and Paul Burkhardt in Johannesburg. Editor: Patrick McKiernan