BLBG: Gold Declines in New York as Dollar Strengthens Against Euro
By Pham-Duy Nguyen
Dec. 15 (Bloomberg) -- Gold dropped in New York as the dollar gained against the euro, eroding the appeal of the precious metal as an alternative asset.
The dollar touched a 10-week high against the European currency. U.S. industrial output in November jumped more than forecast by economists, boosting speculation that the Federal Reserve will raise borrowing costs next year. Gold has rallied 27 percent this year, reaching a record $1,227.50 an ounce on Dec. 3, as low U.S. interest rates drove down the dollar.
“It feels as if gold has seen its highs for the year,” said Frank Lesh, a trader at FuturePath Trading LLC in Chicago. “The dollar was way oversold and gold was overbought, and the markets are adjusting.”
Gold futures for February delivery fell 80 cents to $1,123 an ounce on the New York Mercantile Exchange’s Comex division.
Fed-funds futures on the Chicago Board of Trade indicated a 38 percent chance that the central bank will raise its target lending rate by at least a quarter-percentage point by June, compared with a 33 percent probability a month ago.
The Fed has kept its benchmark rate at zero percent to 0.25 percent since last December. The European Central Bank’s main rate is 1 percent.
Earlier, gold rose as much as 0.6 percent after a government report showed U.S. wholesale prices accelerating, boosting demand for the metal as an inflation hedge.
‘Hot Inflation Number’
“Gold is torn between the hot inflation number of the day and the stronger dollar,” Lesh said. “We’re all looking for inflation, but it doesn’t seem to be the biggest threat to the economy.”
Prices paid to factories, farmers and other producers in the U.S. rose 1.8 percent last month, the Labor Department reported, more than twice the rate forecast by analysts.
“Inflation is beginning to rear its ugly head,” said Matt Zeman, a LaSalle Futures Group Inc. trader in Chicago. “The data shows the economy is coming back, but rates are at record lows. The longer the Fed holds rates this low, the more dangerous the situation becomes on the inflation front.”
Among other metals traded in New York, silver futures for March delivery rose 11.5 cents, or 0.7 percent, to $17.455 an ounce. The most-active contract is up 55 percent this year.
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
