Gold Falls to Snap Longest Rally Since February on Fed Outlook

Jun 17, 2014 2:20 pm ET

June 17 (Bloomberg) -- Gold futures fell, snapping the longest rally since February, on speculation that the Federal Reserve will further curb U.S. monetary stimulus, damping demand for the precious metal as an alternative investment.

The Federal Open Market Committee, which starts a two-day meeting today, reduced the monthly pace of bond purchases by $10 billion in each of the past four meetings. U.S. and Iranian officials met in Vienna as President Barack Obama weighs options against the insurgency by Sunni militants in Iraq.

Gold has dropped 8 percent in the past 12 months as equities surged and the Fed reduced stimulus. The central bank will probably raise its benchmark interest rate faster than money-market investors expect, a majority of economists said in a survey by Bloomberg News.

“It seems that the Fed will stay on course with tapering, and worries about higher rates are increasing,” Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago, said in a telephone interview. “The safe-haven premium because of Iraq is also coming off.”

Gold futures for August delivery dropped 0.3 percent to settle at $1,272 an ounce at 1:37 p.m. on the Comex in New York. The price rose in the previous six sessions, the longest rally since Feb. 18, amid escalating tensions in Iraq.

The metal climbed 70 percent from December 2008 to June 2011 as the central bank bought debt and held borrowing costs near zero percent.

The Fed’s “June meeting will be in focus this week while a U.S. dollar rebound could weigh on bullion prices, provided Iraqi headlines subside,” Andrey Kryuchenkov, an analyst at VTB Capital in London, said in a note.

Silver Rally

Silver futures for July delivery rose 0.1 percent to $19.732 an ounce on the Comex. The price climbed for the seventh straight session, the longest rally since Feb. 18. Earlier, the metal fell as much as 1.4 percent.

On the New York Mercantile Exchange, platinum futures for July delivery gained 0.3 percent to $1,443.10 an ounce. Palladium futures for September delivery climbed 0.9 percent to $816.70 an ounce.

Palladium has increased 14 percent this year and platinum gained 5 percent as a 20-week strike in South Africa crippled output.

The Association of Mineworkers and Construction Union has conditions for mining companies before agreeing to a pay proposal that was accepted last week “in principle.”

South Africa is the world’s largest platinum producer and trails Russia as the top source of palladium.

--With assistance from Luzi Ann Javier in New York.