Gold Falls to 10-Week Low as U.S. Economy Erodes Haven Demand

Apr 22, 2014 2:39 pm ET

April 22 (Bloomberg) -- Gold futures fell to a 10-week low as signs of an improving U.S. economy crimped haven demand.

Manufacturing in the region covered by the Federal Reserve Bank of Richmond in Virginia expanded in April, reinforcing the U.S. central bank’s view that the economy is recovering and stimulus cuts are warranted. Gold has dropped 8 percent from a six-month high on March 17, partly on concern that the Fed may raise interest rates in 2015 after ending debt purchases this year. Equities headed for the longest rally since September.

“The demand for gold is diminishing as the U.S. economy continues to march ahead,” Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago, said in a telephone interview. “While tension in Ukraine could provide some temporary support, the overall sentiment is negative.”

Gold futures for June delivery fell 0.6 percent to settle at $1,281.10 an ounce at 1:43 p.m. on the Comex in New York. Earlier, the price touched $1,275.80, the lowest for a most- active contract since Feb. 11.

The Fed in March reduced the monthly pace of bond purchases by $10 billion to $55 billion, and signaled additional cuts in “further measured steps.” Gold jumped 70 percent from December 2008 to June 2011 as the Fed bought debt and cut borrowing costs to a record in a bid to boost the economy.

‘Under Pressure’

In 2013, the metal plunged 28 percent, the most in three decades. The price has climbed 6.6 percent this year, partly as tensions between Ukraine and Russia boosted haven demand.

An improving job market and increasing factory production in March contributed to a jump in the U.S. index of leading indicators, a report showed yesterday, signaling the pace of economic growth is poised to snap back.

Yesterday, holdings in exchange-traded products backed by gold fell to 1,735.2 metric tons, the lowest since October 2009, according to data compiled by Bloomberg.

“Gold remains under pressure as long as economic data out of the U.S. is positive,” Sun Yonggang, a macroeconomic strategist at Everbright Futures Co., said in a telephone interview from Shanghai. “We see some support from the little pickup in physical activity when prices fall below $1,300.”

Silver futures for May delivery gained 0.1 percent to $19.361 an ounce on the Comex.

On the New York Mercantile Exchange, platinum futures for July delivery fell less than 0.1 percent to $1,400.30 an ounce.

The Association of Mineworkers and Construction Union, whose members have been on a pay strike in South Africa for 13 weeks, are meeting today with Anglo American Platinum Ltd., Impala Platinum Holdings Ltd. and Lonmin Plc, the world’s largest producers.

While Amplats and Impala on April 17 increased a wage offer, a resolution may be weeks away, according to SBG Securities Ltd. and Investec Asset Management.

Palladium futures for June delivery climbed 0.8 percent to $783.65 an ounce.

--With assistance from Glenys Sim in Singapore.