Gold Declines as Interest-Rate Outlook Trumps Ukraine Concerns

Jul 18, 2014 2:41 pm ET

July 18 (Bloomberg) -- Gold futures fell for the first time in three days as speculation that the Federal Reserve will raise U.S. interest rates sooner than expected outweighed concerns that tensions between Ukraine and Russia will escalate.

The Fed may have to raise its benchmark rate more quickly than planned as unemployment drops and inflation accelerates, James Bullard, president of the St. Louis Fed, said yesterday. Yesterday, gold jumped the most in four weeks after a Malaysia Airlines plane crashed in Ukraine and Israel sent ground forces into the Gaza Strip. Russia and Ukraine blamed each other for the downing of the passenger jet that killed 298 people.

Bullion rose 8.9 percent this year as Fed policy makers pledged to keep borrowing costs low, while turmoil in the Middle East and Eastern Europe spurred demand for a haven asset. The metal posted the first weekly drop since May as gains in the U.S. economy bolster the case for a rate increase. The dollar reached a four-week high against a basket of 10 major currencies.

“There’s a little bit of concern that the Fed starts tightening,” Rob Kurzatkowski, a senior commodity analyst at optionsXpress, a Chicago-based brokerage unit of Charles Schwab Corp., said in a telephone interview. “Some of the fears that we’ve seen yesterday have dissipated.”

Gold futures for August delivery fell 0.6 percent to settle at $1,309.40 an ounce at 1:33 p.m. on the Comex in New York. This week, the price dropped 2.1 percent, snapping the longest rally since August 2011.

This year, gold has outperformed commodities, equities and Treasuries. In 2013, the metal plunged 28 percent, the most in three decades, as U.S. stocks rallied to a record and inflation was muted.

Payrolls Climb

Payrolls rose in 33 states in June and the U.S. unemployment rate fell in 22, adding to advances in the labor market, U.S. government data showed today. The index of leading indicators increased last month, signaling the economy continues to gain momentum.

Silver futures for September delivery fell 1.2 percent to $20.886 an ounce. This week, the price dropped 2.7 percent, halting the longest rally since September 2012.

On the New York Mercantile Exchange, palladium futures for September delivery lost 0.4 percent to $881.50 an ounce.

Yesterday, the price reached $890, the highest since February 2001. That boosted the 14-day relative-strength index above 70, a level seen by some traders who study charts as a sign that prices are poised to retreat.

Platinum futures for October delivery dropped 0.9 percent to $1,489.90 an ounce.

--With assistance from Shobhana Chandra and Jeanna Smialek in Washington.