Gold declines for second session on U.S. stimulus speculation

Gold (COMEX:GCZ13) fell for the second straight session after a Federal Reserve official said policy makers may start reducing U.S. fiscal stimulus as early as next month.

The central bank’s decision last week to refrain from paring its $85 billion in monthly bond buying was a “borderline” call, and tapering may start in October, Fed Bank of St. Louis President James Bullard said on Sept. 20. Gold dropped 2.7 percent on that day, the most since July 5. Prices surged 70 percent from the end of December 2008 to June 2011 as the Fed bought debt and stoked inflation concerns.

“The wind was taken out of the market’s sails, and we’re seeing some carry-through selling,” Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago, said in a telephone interview. “There’s not a lot to support prices now.”

Gold futures for December delivery fell 0.4 percent to settle at $1,327 an ounce at 1:47 p.m. on the Comex in New York. On Sept. 19, the price jumped 4.7 percent, the most since March 2009, after the Fed said that it wants to see more evidence of an economic recovery before cutting stimulus.

Futures slumped 21 percent this year after a U.S. equity rally to a record and low inflation eroded the appeal of gold as an alternative investment. Holdings in exchange-traded products backed by the metal have tumbled to the lowest in three years.

Gold may drop below $1,250 before the end of the year as the U.S. economy gains and investors expect the Fed to start reducing asset purchases, Citigroup Inc. said today in a report.

Silver futures for December delivery fell 0.3 percent to $21.857 an ounce on the Comex.

On the New York Mercantile Exchange, platinum futures for October delivery fell 0.5 percent to $1,425.90 an ounce. Trading was 83 percent above the average in the past 100 days, according to data compiled by Bloomberg.

Palladium futures for December delivery dropped 0.6 percent to $717.95 an ounce.

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