Gold Price Falls as Stocks Advance and Traders See Higher U.S. Rates

London (July 25)  Gold fell, extending the first back-to-back weekly drop since May, as buoyant equity markets and expectations for higher U.S. interest rates hurt demand.

Federal Reserve policy makers meet Tuesday and Wednesday and signs of strength in the U.S. economy have prompted traders to increase bets on a rate increase. They’re pricing in a 45 percent chance of a move by December, up from 12 percent at the start of the month. Higher rates are typically negative for gold because the metal doesn’t pay interest.

“The economic cycle is still healthy in the U.S., putting the Fed on track for an interest-rate hike,” Thorsten Proettel, an analyst at Landesbank Baden-Wuerttemberg in Stuttgart, said by phone. He expects a move in early 2017. “Gold has risen too much too quickly. Right now, everything speaks for a consolidation of the gold price.”

Bullion lost 0.3 percent to $1,318.98 an ounce by 11:31 a.m. in London, according to Bloomberg generic pricing. The metal declined 1.1 percent last week and is up 24 percent this year.

Its rally has been trimmed as a stronger dollar and higher equities cut demand for a store of value and alternative investment. Purchases in gold-backed exchange-traded funds have also slowed in the past two weeks after touching a three-year high on July 11, data compiled by Bloomberg show.

In other precious metals:
•Silver dropped 0.7 percent to $19.4925 an ounce.
•Platinum declined 0.6 percent. Palladium retreated 1.2 percent after touching the highest since October on Friday.

Source: Bloomberg