Gold Posts First Weekly Decline in Three on Fed Taper Concern

May 09, 2014 2:59 pm ET

May 9 (Bloomberg) -- Gold fell, capping the first weekly drop in three weeks, on speculation that the Federal Reserve will curb monetary stimulus as the U.S. economy recovers, crimping demand for the metal as an alternative investment.

Policy makers trimmed bond purchases last week for the fourth time since November. Fed Chair Janet Yellen said May 7 that strength in the economy made measured reductions in asset purchases appropriate, even as stimulus is still needed. Bullion slumped 28 percent last year, the most since 1981, on concern the central bank would slow the pace of bond buying.

“Yellen made it clear that tapering will continue,” Tommy Capalbo, a broker at Newedge Group in New York, said in a telephone interview. “Gold is getting some support from political tension, but other then that, there is little interest.”

Gold futures for June delivery fell less than 0.1 percent to settle at $1,287.60 an ounce at 1:39 p.m. on the Comex, extending the week’s decline to 1.2 percent.

Prices are up 7.1 percent this year, partly because of escalating turmoil in Ukraine. The government in Kiev and its U.S. and European allies say President Vladimir Putin is fomenting unrest in eastern Ukraine, where pro-Russian separatists in the Donetsk and Luhansk regions are preparing to stage autonomy referendums May 11.

Boost Economy

Gold rose 70 percent from December 2008 to June 2011 as the Fed bought debt and cut interest rates to a record in a bid to boost the economy.

Silver futures for July delivery fell 0.1 percent to $19.121 an ounce in New York, capping a second straight weekly decline at 2.2 percent.

On the New York Mercantile Exchange, platinum futures for July delivery lost 0.6 percent to $1,429.90 an ounce. Palladium futures for June delivery fell 0.5 percent to $799.75 an ounce.

Platinum has gained 4.1 percent this year and palladium 11 percent on concern supply will be disrupted by a miners’ strike in South Africa and sanctions by western nations against Russia. The nations are the biggest producers of both metals.

--With assistance from Nicholas Larkin in London.