Economy Today

Gold futures fell sharply Monday to settle below $1,100 for the first time since early last month, following a now-familiar pattern of losing ground when the dollar strengthens.

Investors are moving into the dollar amid signs of economic recovery and expectations that the Federal Reserve could hike rates sooner than previously anticipated. Gold hit a series of record highs last month as the dollar weakened, benefiting from an easy money policy of rates near zero, but the metal has fallen 10% since its record high on Dec. 3.

Benchmark February gold futures fell $15.50, or nearly 1.4%, on Monday to settle at $1,096 an ounce on the Comex division of the New York Mercantile Exchange. The thinly traded nearby December contract lost $15.40 to settle at $1,095.40. Gold last settled below $1,100 on Nov. 6.

Shortly after gold closed, the ICE Futures U.S. Dollar Index was up 0.216 point at 77.987 points.

Comments from Chicago Federal Reserve President Charles Evans contributed to the dollar’s rise. Evans said in an interview with CNBC that Fed officials will give rate increases closer consideration in three to four meetings.

A rate increase would begin to soak up some of the emergency liquidity pumped into financial markets, supporting the dollar and pressuring gold prices.

“Expectations have been rising that the Fed would raise rates in the middle of next year,” said Carlos Sanchez, associate director of research with CPM Group.

Evans also said that low inflation and “anchored” inflation expectations, coupled with economic slack, argue for the Fed to continue to maintain its zero-percent interest rate policy and asset market interventions.

George Gero, vice president with RBC Capital Markets Global Futures, said the comments about low inflation contributed some pressure to gold.

In addition to trading as a so-called risk play recently, luring short-term speculators looking to ride the rally, the metal continues to be viewed by some as an inflation hedge. That means that low inflation or expectations of such can be a bearish environment for gold.

Stephen Platt, analyst with Archer Financial Services, said some of the pressure on gold Monday was coming as investors were seeking a safer play in the dollar.

The metal, traditionally considered a safe haven during times of turbulence, turned into more of a risk play over the past few months, lumped in with a group of assets, such as stocks and other commodities, that could bring in higher returns than the dollar. As risk tolerance has ebbed this month, the dollar has lured the safe haven flows and gold has faltered.

Further, dollar-denominated assets like gold often trade inversely to the greenback because dollar movements make them more or less expensive for those using other currencies.

Some of gold’s volatility can be attributed to lowered liquidity because of the holidays. That market thinness meant pre-placed sell orders were easily triggered as the dollar rose.

Platt said silver prices followed gold lower. Comex March silver fell 28.5 cents to settle at $17.035 an ounce.

Platinum group metals also faltered with gold, with Nymex April platinum falling $5.90 to settle at $1,428.60 and March palladium on the exchange dipping $2.50 to finish at $365.40 an ounce.

Some trading congestion amid the rollover from January to April contracts was easing, also removing some support from platinum prices, Sanchez said.  (Source: WSJ)