Gold Tumbles to Two-Month Low on Rate Outlook as Platinum Falls

Aug 21, 2014 2:21 pm ET

Aug. 21 (Bloomberg) -- Gold fell to a two-month low in New York as the outlook for higher U.S. interest rates reduced the appeal of the metal as an alternative investment. Platinum headed for the longest run of losses in 27 years in London.

Many U.S. policy makers raised the possibility they may boost rates sooner than anticipated, minutes of the Federal Reserve’s July meeting showed yesterday. Fewer Americans than forecast applied for unemployment benefits last week, signaling the job market is making progress and bolstering the case for higher borrowing costs. The dollar reached a six month high today against a basket of 10 major currencies before trading little changed.

Bullion futures more than doubled from December 2008 to a record $1,923.70 an ounce in September 2011 as the Fed purchased debt and cut rates to an all-time low to spur economic growth. Prices slid 28 percent last year as the global expansion accelerated and policy makers started reducing bond buying. The metal has risen 6.1 percent this year, partly as unrest in Ukraine and the Middle East increased haven demand.

“The market is digesting the likelihood of the Fed raising rates, given the improvement in the numbers,” Tim Evans, the chief market strategist at Long Leaf Trading Group Inc. in Chicago, said in a telephone interview. “That’s very dollar- bullish, and it’s creating a lot of pressure on dollar- denominated assets, especially gold.”

Gold futures for December delivery dropped 1.5 percent to settle at $1,275.40 at 1:43 p.m. on the Comex in New York, after touching $1,273.40, the lowest for a most-active contract since June 18. Prices fell for a fifth session, the longest run since June 2.

Moving Average

Today’s decline took the metal below its 200-day moving average. Prices held above the measure from early 2009 through late 2011 and slipped as much as 28 percent after dropping below the average in February 2013. Bullion fluctuated above and below the measure this year.

“Prices moved lower very quickly as weak longs sold and stops were triggered,” said Wallace Ng, a Shanghai-based trader at Gemsha Metals Co., referring to some investors ending bets on gains. “The market interpreted the minutes as there being a greater possibility of a rate hike in the near future.”

Futures Traders

Futures traders saw a 50.5 percent chance the Fed will raise its benchmark interest rate to at least 0.5 percent by July, up from 48.3 percent odds two days ago. There was no discussion of the timing of a rate increase in the minutes. The central bank, which has been cutting bond buying, has kept its benchmark rate at almost zero since December 2008.

Fed Chair Janet Yellen will provide her take on the latest data on labor markets in a speech tomorrow at a meeting of central bankers in Jackson Hole, Wyoming.

Silver futures for December delivery slid 0.4 percent to $19.487 an ounce in New York, after reaching $19.355, the lowest for a most-active contract since June 12.

Platinum futures for October delivery fell 0.7 percent to $1,419.30 an ounce, a seventh straight loss, the longest run since June 2011. In London, the spot price fell for a 10th straight session, the longest stretch since at least January 1987.

The commodity rose as much as 11 percent this year as a five-month mining strike that ended in June in South Africa, the world’s largest producer, cut supply at a time when car companies are using more of the material in catalytic converters. Prices in New York have retreated 6.9 percent since touching a 10-month high on July 10.

“The market may have gotten ahead of itself on the recent price rally,” James Steel, an analyst at HSBC Securities (USA) Inc., said in a note. Platinum-group metals “may require a further pull-back before prices can resume a longer-run rally.”

Palladium futures for September delivery gained 1.3 percent to $879.90 an ounce.

--With assistance from Glenys Sim in Singapore.