Gold erases 2014 gains as silver slumps to 55-month low on GDP

October 30, 2014

NEW YORK — The more the U.S. economy improves, the worse things get for gold.

Bullion fell below $1,200 an ounce Thursday, erasing its gains for the year, after the U.S. government reported that the United States grew at a faster pace than analysts forecast in the third quarter. A stronger economy is validating optimism that prompted the Federal Reserve to say Wednesday that it will stop buying debt, further diminishing the appeal of precious metals an inflation hedge. Silver tumbled to a 55-month low.

Global holdings in exchange-traded products backed by gold have dropped to the lowest in five years. In China, the world’s top bullion buyer, the government sent investigators to probe a sevenfold surge in precious-metals exports, raising concern demand in the country will slide. Imports in India, the second- biggest consumer, are poised to plunge this month, a jewelers’ group said.

“In the current environment, we see no reason to own gold,” Scott Gardner, who helps manage $450 million at Verdmont Capital SA in Panama City, said in a telephone interview. “Some people were disappointed with Wednesday’s Fed statement since they expected it to be more dovish in light of a stronger dollar, and we continue to see some good U.S. economic data.”

Gold futures for December delivery slumped 2.1 percent to settle at $1,198.60 at 1:42 p.m. on the Comex in New York, leaving prices down 0.3 percent in 2014. Aggregate trading was 64 percent above the average for the past 100 days for this time, according to data compiled by Bloomberg.

The price touched $1,195.50, the lowest since Oct. 6, when gold reached this year’s low of $1,183.30.

Fewer U.S. citizens filed applications for unemployment benefits over the past month than at any time in 14 years, government figures showed Thursday. Gross domestic product grew at a 3.5 percent annualized rate in the third quarter, the U.S. Commerce Department said. That compared with a median forecast for a 3 percent advance by economists in a Bloomberg survey.

“Gold dipped further on the stronger-than-expected GDP print and weekly claims” for jobless benefits, Tai Wong, the director of commodity product trading at BMO Capital Markets Corp. in New York, said in a telephone interview. “The market was already under pressure as the Fed ended the QE, and there are no worries about inflation.”

Silver futures for delivery in December plunged 4.9 percent to $16.42 an ounce, the biggest drop since Sept. 20. The metal touched $16.33, the lowest since March 2, 2010. Trading was 62 percent above the average for the past 100 days for this time, according to Bloomberg data.

Last quarter, gold slumped 8.4 percent as the dollar jumped 6.7 percent and equities surged to an all-time high. Wednesday, at the conclusion of its two-day policy meeting, the Fed maintained its pledge to keep interest rates near zero percent for a “considerable time.”

Rising rates reduce gold’s allure because the metal generally offers investors returns only through price gains, while a stronger dollar typically cuts demand for a store of value. The U.S. has had “solid job gains,” the Federal Open Market Committee said Wednesday.

The Fed statement was “more hawkish than what the market was expecting,” Edward Meir, an analyst at INTL FCStone Inc., wrote in a note. “The Fed will be inclined to raise rates sooner rather than later.”

Gold tumbled 28 percent last year and investors dumped ETPs on expectations for reduced U.S. stimulus as the economy improved.

On the New York Mercantile Exchange, palladium futures for delivery in December fell 2.5 percent to $780.70 an ounce. The price rose in the previous nine sessions, the longest rally in two months.

Platinum futures for January delivery declined 1.8 percent to $1,245.90 an ounce, the largest decline since Oct. 3.

© 2014, Bloomberg News

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