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Gold falls to 5 week low on interest rate concerns Original Source Link: (May no longer be active)
http://www.bloomberg.com/apps/news?pid=10000081&sid=aOtBrQV7IuDQ&refer=australiahttp://www.bloomberg.com/apps/news?pid=10000081&sid=aOtBrQV7IuDQ&refer=australia
Gold Falls to 5-Week Low as Inflation Report Spurs Rate Concern
March 23 (Bloomberg) -- Gold prices fell to a five-week low in New York on speculation the Federal Reserve will quicken the pace of interest-rate increases to stem inflation, reducing the allure of the metal as a hedge.
Consumer prices in February gained the most in four months. Gold sold in dollars has dropped from a 16-year high of $458.70 an ounce on Dec. 2 on concern rising rates will boost demand for the U.S. currency and curb inflation. The metal fell yesterday in electronic trading after the Fed raised its benchmark rate a quarter-point and said ``pressures on inflation have picked up.''
``There's growing evidence that inflation could develop,'' said Paul McLeod, vice president of precious metals at Commerzbank Securities in New York. ``The Fed's commentary that they're going to take action to contain'' inflation weakened the argument to buy gold as a hedge, McLeod said.
Gold futures for April delivery fell $6.20, or 1.4 percent, to $425.40 an ounce on the Comex division of the New York Mercantile Exchange, the lowest for a most-active contract since Feb. 11. A futures contract is an obligation to buy or sell a commodity at a set price by a specific date.
Inflation
Consumer prices rose 0.4 percent after rising 0.1 percent in January, the Labor Department said today. Excluding food and energy, or core prices, rose 0.3 percent after climbing 0.2 percent in January, Economists expected a 0.2 percent gain, based on the median of 76 forecasts in a Bloomberg survey.
``Greenspan said he feared inflation, and you'd think gold would be going up,'' said Michael Wagner, owner of FIC Commodities, a precious-metals brokerage in New York. ``Put me on the list of people who are surprised.''
Some investors buy gold in times of inflation, which erodes the value of fixed-income assets, such as bonds. Gold futures surged to $873 an ounce in 1980, when U.S. consumer prices rose 12.5 percent from the previous year.
The Fed has increased its rate for overnight loans between banks five times last year and twice this year from a 46-year low of 1 percent, surpassing the European Central Bank's benchmark rate of 2 percent.
Economists from 13 of the 22 primary dealers that trade government debt directly with the Fed say the FOMC may abandon by June what it calls a ``measured'' pace in raising rates and boost its benchmark more quickly, based on a Bloomberg survey on March 17 and March 18.
Gold also fell as a gain in the dollar eroded the appeal of the precious metal as an alternative against U.S. stocks and bonds. The euro fell against the dollar today after German business confidence unexpectedly weakened.
The confidence report ``is not going to help gold,'' Wagner said. ``Gold's under pressure now because the euro is down. Gold is more than anything else still a dollar play.''
Gold has dropped 4 percent in the past three months, matching the decline by the euro against the dollar.
Last Updated: March 23, 2005 16:40 EST
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