Gold Futures Fall on U.S. Interest-Rate Outlook, Fed Speculation

Jul 22, 2014 3:11 pm ET

July 22 (Bloomberg) -- Gold futures fell for the second time in three sessions on speculation that the Federal Reserve will raise U.S. interest rates sooner than forecast, crimping demand for the precious metal as an alternative investment.

U.S. consumer prices rose 0.3 percent in June after a 0.4 percent gain in May, adding pressure on the Fed to increase its benchmark rate from a record low. The dollar rose to a four-week high against a basket of major currencies.

This year, gold has climbed 8.8 percent as turmoil in the Middle East and Ukraine boosted demand for a haven. European Union governments pressed Russian President Vladimir Putin to speed a probe into the downing of Malaysian Air flight MH17 or face more sanctions. U.S. Secretary of State John Kerry put the onus on the Gaza Strip’s Hamas rulers to halt two weeks of fighting with Israel.

“While violence and political upheaval can provide temporary support, gold is headed down as people are concerned about the U.S. raising interest rates,” Phil Streible, a senior commodity broker at R.J. O’Brien & Associates in Chicago, said in a telephone interview.

Gold futures for December delivery fell 0.6 percent to $1,308 an ounce at 1:37 p.m. on the Comex in New York. Earlier, the price dropped as much as 0.9 percent as the standoff over the downed jet in Ukraine eased.

‘Temporary Effect’

“Geopolitical risks could escalate further and add to the upside, but these usually only have a temporary effect on the market,” Andrey Kryuchenkov, an analyst at VTB Capital in London, said in a note. “We do not expect a sustained price rebound here with hardly any support from the physical side at the moment.”

In 2013, gold tumbled 28 percent, the most in three decades, as equities surged and the Fed tapered monetary stimulus on signs of a recovery in the labor market.

The MSCI All-Country World Index of equities rose as much as 0.7 percent today.

Silver futures for September delivery fell less than 0.1 percent to $21.008 an ounce on the Comex.

On the New York Mercantile Exchange, platinum futures for October delivery dropped 0.3 percent to $1,488.30 an ounce.

Palladium futures for September delivery declined 0.3 percent to $874.85 an ounce, the third straight drop and the longest slump since June 16. Russia is the world’s top producer of the metal used mostly in pollution-control devices in vehicles.

This year, palladium has advanced 22 percent as auto sales climbed in the U.S. and China, while a five-month strike by miners cut output in South Africa, the second-biggest producer.

Holdings in exchange-traded products backed by palladium and platinum rose to records yesterday, data compiled by Bloomberg show.

--With assistance from Glenys Sim in Singapore.