Gold Falls to Lowest Since July on Federal Reserve Taper Concern

San Francisco (Nov 21)   Gold futures fell to the lowest since July as investors weighed speculation that the Federal Reserve may reduce monthly bond purchases in coming months.

Policy makers expect U.S. economic data will signal further improvement in the labor market and “warrant trimming the pace of purchases in coming months,” according to minutes of the Fed’s October meeting released yesterday. Applications for unemployment benefits in the U.S. for the week ended Nov. 16 declined to the lowest in almost two months, the Labor Department said today.

“The market is convinced that the Fed is ready to start tapering,” Sterling Smith, a futures specialist at Citigroup Inc. in Chicago, said in a telephone interview. “Today’s jobless data shows that the economy is improving, and gives people another reason to believe gold will continue to weaken.”

Gold futures for December delivery tumbled 1.3 percent to $1,241.10 an ounce at 9:36 a.m. on the Comex in New York, after dropping to $1,237.50, the lowest since July 9.

Trading was 54 percent higher than the average for the past 100 days for this time of day, according to data compiled by Bloomberg.

Expectations that the Fed will trim its $85 billion in monthly asset purchases pushed gold toward its first annual drop since 2000. Prices fell 25 percent this year through yesterday. Some investors lost faith in the precious metal as a store of value. Holdings in the SPDR Gold Trust, the biggest bullion- backed exchange-traded product, declined for a third day to 860.31 metric tons yesterday, the lowest since February 2009.

Gold is still heading for a significant decline in 2014, Goldman Sachs Group Inc. said in a report yesterday outlining investment themes for next year. Bullion may drop to $1,050 by the end of the year, analysts including Jeffrey Currie wrote.

Silver futures for March delivery retreated 1.3 percent to $19.845 an ounce in New York, after touching $19.80, the lowest since Aug. 8.