Gold Erases 2015 Gains on Concern US Rates Will Rise

New York (Mar 6) The more the U.S. economy improves, the worse things get for gold bulls.

Bullion erased its 2015 gains Friday after a government report showed American employers added more jobs than forecast in February. The unemployment rate dropped to the lowest in almost seven years. Holdings in exchange-traded funds backed by gold headed for the biggest weekly decline since November.

A stronger economy is fueling speculation that the Federal Reserve is getting closer to raising interest rates for the first time since 2006, damping the appeal of the metal, which generally offer returns through price gains. Futures fell 5.2 percent last month amid gains in U.S. equities and easing concern over Greece’s debt.

“People don't see much need for safe-haven assets,” Kevin Chen, the chief investment officer of New York-based Three Mountain Capital Management LP, said in a telephone interview. “The jobs report is another indication that the economy is doing very well.”

On the Comex, gold futures for April delivery fell 1.8 percent to $1,175.10 an ounce at 10:08 a.m. in New York, heading for the biggest drop since Feb. 6. Earlier, the metal slumped to $1,173.80, the lowest since Jan. 2. In 2014, prices fell 1.5 percent to $1,184.10.

Gold dropped 29 percent in the previous two years as the dollar surged and inflation remained low. Prices climbed 70 percent from December 2008 to June 2011 partly as the Fed held interest rates near a record low.

The U.S. currency rose against most major peers after the employment data, cutting the appeal of bullion as an alternative asset. While the Fed has said it will be “patient” on increasing borrowing costs, Chair Janet Yellen said last week the timing will depend on economic data.

Silver futures for May delivery retreated 2.1 percent to $15.825 an ounce on the Comex, heading for the biggest drop since Feb. 17.

Source: Bloomberg