Gold Falls to 8-Month Low in New York on Fed Rate Outlook

London (Sept 18)   Gold declined to an eight-month low in New York as the Federal Reserve increased estimates for interest rates. Platinum touched the lowest level this year.

The dollar reached a 14-month high against the euro today after Fed policy makers raised their median estimate for the key rate to 1.375 percent at the end of 2015 versus June’s forecast for 1.125 percent. Higher rates reduce gold’s allure because the metal only offers investors returns through price gains, while a stronger dollar typically cuts demand for a store of value.

Gold halted a 12-year rally in 2013 as the U.S. central bank prepared to cut monthly asset purchases, which it did for a seventh time yesterday. The metal is heading for the first quarterly decline this year amid signs the U.S. economy is strengthening. The drop has kept bullion’s 14-day relative strength index below 30 since last week, signaling to some traders who study charts that prices may be poised to rebound.

“The Fed seems to be slowly preparing the markets to gear up towards an eventual monetary-tightening cycle,” Abhishek Chinchalkar, an analyst at Mumbai-based AnandRathi Commodities Ltd., said in a report today. “We may see some bargain buying in gold at these levels, but we reckon that any rallies are unlikely to be sustained as we head closer towards an eventual end to the ultra-accommodative monetary stance in the U.S. ”

Gold for December delivery fell 1 percent to $1,223.20 an ounce by 7:36 a.m. on the Comex in New York. It reached $1,216.60 today, the lowest since Jan. 6. Gold for immediate delivery was little changed at $1,222.38 an ounce in London, according to Bloomberg generic pricing.

Trading Volume

Futures trading volume was 12 percent above the average for the past 100 days for this time of day, data compiled by Bloomberg show.

The Fed said yesterday monthly bond buying will be cut to $15 billion, staying on course to end the program in October. It retained a commitment to keep interest rates near zero for a “considerable time” after winding down debt purchases.

“Expectations of higher policy interest rates going forward is gold-bearish,” James Steel, an analyst at HSBC Securities (USA) Inc., wrote in a note. “If the dollar remains firm, gold should stay on the defensive. Further declines may elicit emerging-market demand, notably, but not exclusively, from China and India.”

In China, the world’s largest gold buyer, volumes for the benchmark spot contract on the Shanghai Gold Exchange this week averaged about 47 percent more than the average this year, the latest data show.

Holdings in gold-backed exchange-traded products are at the lowest level since October 2009, data compiled by Bloomberg show. While silver-fund assets dropped 150.4 metric tons yesterday, the most this year, holdings are 1.1 percent below the record 20,121.5 tons set last year.

Silver for delivery in December fell 1.4 percent to $18.48 an ounce in New York. It reached $18.455 on Sept. 12, the lowest since June 2013. Platinum for delivery in October dropped 1 percent to $1,348.60 an ounce, after touching $1,347 an ounce, the lowest since Dec. 26. Palladium for delivery in December slipped 1.3 percent to $828.40 an ounce.

Source:  Bloomberg