Gold Drops as Signs of Improving Global Growth Curb Haven Appeal

May 06, 2014 2:22 pm ET

May 6 (Bloomberg) -- Gold futures slid from a three-week high as signs of an improving global economy reduced the appeal of haven assets.

The U.S. trade deficit narrowed in March as exports grew by the most in nine months, the Commerce Department reported today. A Purchasing Managers’ Index for services in the euro region climbed to 53.1 in April, from 52.2 the previous month, Markit Economics said. Gold has gained 8.8 percent this year on concern that growth in U.S. was faltering and as tension between Ukraine and Russia escalated.

“The flight-to-quality premium has come off because of improving economic conditions,” Adam Klopfenstein, a senior market strategist at Archer Financial Services in Chicago, said in a telephone interview. “We could see some temporary strength because of the volatile situation in Ukraine, but the overall sentiment remains negative.”

Gold futures for June delivery fell less than 0.1 percent to settle at $1,308.90 an ounce at 1:39 p.m. on the Comex in New York, after yesterday reaching $1,315.80, the highest since April 15. Trading was 16 percent below the average for the past 100 days for this time, data compiled by Bloomberg showed.

Prices will have a “slow grind” down and reach $1,050 by year-end as the U.S. economy strengthens, Goldman Sachs Group Inc. wrote in a report yesterday. Gold slumped 28 percent last year, the biggest annual drop since 1981, on concern that the Federal Reserve would slow the pace of bond purchase as the U.S. showed signs of improvement.

Stimulus Cut

The U.S. central bank reduced monthly asset buying to $45 billion on April 30, the fourth straight cut from $85 billion as of November, and policy makers said further reductions in “measured steps” are likely.

Fed Chair Janet Yellen is due to testify tomorrow to the Joint Economic Committee of the U.S. Congress.

On the New York Mercantile Exchange, platinum futures for July delivery rose 0.7 percent to $1,458.10 an ounce, after reaching $1,459.60, the highest for a most-active contract since April 15.

Impala Platinum Holdings Ltd. said today that it may cut metal deliveries by as much as 60 percent within three to four months a strike at mines in South Africa continues. More than 70,000 people have been on strike since Jan. 23. The country is the main producer of platinum and the second-biggest supplier of palladium.

Palladium futures for June delivery rose 0.2 percent to $818.40 an ounce.

Silver futures for July delivery gained 0.4 percent to $19.645 an ounce on the Comex.

--With assistance from Phoebe Sedgman in Melbourne and Nicholas Larkin in London.