Gold fell to the lowest since July after signs of a strengthening U.S. economy fueled speculation that the Federal Reserve is ready to slow the pace of its monetary stimulus. Silver tumbled.
Futures in New York fell as much as 2.5% to $1,218.80 an ounce, the lowest since July 8. U.S. manufacturing unexpectedly accelerated in November at the fastest pace in more than two years, the Institute for Supply Management’s factory index showed today. Bullion dropped 5.5% in November as minutes of the Fed’s latest meeting signaled officials may reduce their $85 billion in monthly bond purchases in coming months as the economy improves.
Gold is heading for the first yearly retreat since 2000, and silver is poised for the worst rout in three decades. Some investors lost faith in precious metals as a store of value as global equities rallied and inflation failed to accelerate. Global holdings in exchange-traded products backed by bullion tumbled 30% this year to the lowest since March 2010, erasing $69 billion from the value of the assets.
“The Fed is getting more and more evidence that it can start slowing the stimulus gas pedal,” David Lee, a vice president at Heraeus Precious Metals Management in New York, said in a telephone interview. “Manufacturing numbers show that the world recovery is in place.”
Gold futures for February delivery (COMEX:GCG13) fell 2.3% to settle at $1,221.90 at 1:58 p.m. on the Comex in New York, the biggest slump since Oct. 1.
The Fed will pare monthly asset purchases to $70 billion at its March 18-19 meeting, according to a Bloomberg survey last month. The central bank’s next gathering is Dec. 17-18.
Gold rose 70% from December 2008 to June 2011 as the Fed expanded its balance sheet through debt purchases, fueling expectations of accelerated inflation and a weaker dollar.
“The ISM number sealed the deal for tapering,” James Cordier, the founder of Optionsellers.com in Tampa, Florida, said in a telephone interview. “The safe-haven premium has dropped because the economy is improving.”
Goldman Sachs Group Inc. forecast in October that its favored gauge, the Standard & Poor’s GSCI Enhanced Commodity Index, will be 0.7% lower in 12 months. Precious metals will lead the declines with a drop of 17%, the bank said.
Silver futures for March delivery tumbled 3.7% to $19.289 an ounce, the biggest drop since Oct. 31. Prices have slumped 36% this year, the most among precious metals and on pace for the biggest loss since 1981.
On the New York Mercantile Exchange, platinum futures for January delivery fell 1.6% to $1,346.80 an ounce. After the settlement, prices in electronic trading reached $1,344.10, the lowest since July 8. Palladium futures for March delivery retreated 0.9% to $713.40 an ounce.