Gold fell, paring gains from the biggest monthly advance in three years, on speculation U.S. policy makers won’t postpone raising interest rates.
With the U.S. economy leading global growth and unemployment dropping, investors are wrong to expect the Federal Reserve to delay raising rates beyond mid-year, Fed Bank of St. Louis President James Bullard said Jan. 30. Data due this week will probably show U.S. employers added 232,000 workers last month and construction spending increased, according to economists surveyed by Bloomberg.
“Steady GDP growth, further tightening in the labor markets, and a gradual increase in wage inflation support the FOMC’s guidance for a first hike in mid-2015,” Suki Cooper, an analyst at Barclays Plc in New York, wrote in a report Monday.
Bullion for April delivery dropped 0.5% to $1,273.40 an ounce by 7:45 a.m. on the Comex in New York. It advanced 8% in January. Trading volume was 38% below the 100- day average for this time of day, according to data compiled by Bloomberg.
Gold for immediate delivery lost 0.9% to $1,272.92 according to Bloomberg generic pricing.
Investors pulled out of bullion-backed exchange-traded products on Jan. 30 for the first time in 11 sessions. Holdings fell 0.2 metric ton to 1,663.9 tons, data compiled by Bloomberg show.
Fed officials expect the benchmark funds rate rise to 1.125% by the end of 2015, according to the median estimate of their quarterly forecasts in December. Higher interest rates and better economic growth curb gold’s appeal because the metal generally gives investors returns only through price gains and serves as a haven for investors during market stress.
“Zero is not the right number for this economy,” Bullard said last week in a reference to the benchmark federal funds rate, which has been kept near that level since December 2008. “It is hard to rationalize a zero policy rate” because the economy has “a lot of momentum.”
Money managers are the most bullish on gold in more than two years. Hedge funds and other speculators boosted their net- long position, or bet on higher prices, by 15% in the week ended Jan. 27, U.S. Commodity Futures Trading Commission data show.
Silver for March delivery slipped 0.4% to $17.13 an ounce on the Comex in New York. Prices climbed 10% in January, the most since June.