Gold tumbles most in 16 weeks on Fed taper bets; palladium drops

April 15, 2014 01:41 PM
Metals take a hit

Gold tumbled 2 percent, the most in 16 weeks, on speculation that a gain in U.S. consumer prices will give the Federal Reserve more leeway to reduce monetary stimulus. Palladium fell for the first time in six sessions.

The consumer price index rose 0.2 percent, government data showed today, topping the 0.1 percent forecast in a Bloomberg survey of economists that matched the gain in the prior month. Fed officials debated whether to signal a concern with too-low inflation when they met March 18-19. Data this week showed U.S. retail sales in March increased more than economists forecast.

A year ago today, gold plunged 9.3 percent, the most in three decades, partly on concern the Fed would taper stimulus. In 2014, the price climbed as much as 16% amid signs of a faltering U.S. economy and escalating tensions between Russia and Ukraine that boosted demand for a haven.

“The economy is on the right path and inflation is moving in the right direction, so the Fed can continue with tapering,” Bart Melek, an analyst at TD Securities in Toronto, said in a telephone interview. “The haven premium seems to be largely diminishing.”

Gold futures for June delivery fell $27.20 to settle at $1,300.30 an ounce at 1:37 p.m. on the Comex in New York, the biggest decline since Dec. 19.

Trading Pause

Trading was suspended for about 10 seconds at 8:26 a.m. on the Comex, Chris Grams, a spokesman for CME Group Inc., which owns the exchange, said in an e-mail. More than 6,000 contracts changed hands around that time, according to data compiled by Bloomberg.

The “stop-logic” mechanism gives traders the opportunity to provide additional liquidity and prevent excessive price movements. Palladium trading was also suspended for 10 seconds, he said.

This year, gold has climbed 8.2 percent. In 2013, the metal plunged 28 percent, the most since 1981, amid a equity rally to a record in the U.S. and muted inflation.

The Fed in March reduced the monthly pace of bond purchases by $10 billion to $55 billion, and signaled additional cuts in “further measured steps.” Gold jumped 70 percent from December 2008 to June 2011 as the Fed bought debt and cut interest rates to a record in a bid to boost the economy.

“Gold benefited from the escalation in tension between Russia and the Ukraine, but upbeat U.S. economic data put a damper on the safe-haven rally,” Sun Yonggang, a macroeconomic strategist at Everbright Futures Co. in Shanghai, said in a telephone interview.

China Demand

Chinese demand may be limited this year after the decline spurred consumers to buy more last year, the London-based World Gold Council said today. The nation accounted for about 28 percent of global use last year, the council estimated in February.

Gold will decrease to $1,025 at the end of the year, Justin Smirk, a senior economist at Westpac Banking Corp., said today in Singapore. He was the second-most accurate forecaster in the past two years, data compiled by Bloomberg show. Robin Bhar of Societe Generale SA in London was first.

Silver futures for May delivery fell 2.6 percent to $19.489 an ounce on the Comex, the biggest drop since March 7.

On the New York Mercantile Exchange, palladium futures for June delivery declined 1.9 percent to $795.90 an ounce. Yesterday, the price reached $817, the highest since August 2011.

The metal has advanced 11 percent this year as the threat of a disruption to supplies from Russia, the biggest producer, compounded supply concerns spurred by a miners’ strike in South Africa, the second-largest.

Platinum futures for July delivery dropped 1.6 percent to $1,444.60 an ounce.

--With assistance from Phoebe Sedgman in Melbourne and Glenys Sim in Singapore.

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