Gold drops toward $1,200 as interest rate outlook boosts dollar

Posted on May 25, 2015 10:44:29 AM | BREAKING NEWS

GOLD FELL, extending the biggest weekly loss since April, as prospects for the first US interest rate rise since 2006 helped to push the dollar to a one-month high. Silver, platinum and palladium declined.

Bullion for immediate delivery lost as much as 0.3 percent to $1,202.95 an ounce and traded at $1,203.45 at 8:54 a.m. in Singapore, Bloomberg generic pricing showed. The metal dropped 1.5 percent last week, the most since the period to April 24.

Federal Reserve Chair Janet Yellen still expects to raise rates this year if the economy meets her forecasts. Inflation is moving toward the Fed’s 2 percent target after a report on Friday showed core consumer prices climbed 0.3 percent in April, the biggest gain in two years. While a pickup in inflation can boost demand for bullion as a hedge, higher borrowing costs cut the allure of the metal, which generally only provides returns through price gains.

“If inflation is now lifting, the Fed may soon get under way,” Australia & New Zealand Banking Group Ltd. wrote in a note, estimating the Fed will boost rates in September. “A few more solid inflation outcomes and it could be game-on.”

The Bloomberg Dollar Spot Index rose as much as 0.2 percent to 1,181.92 on Monday, the highest since April 27. The gauge rallied 2.6 percent last week, the most since September 2011.

Gold for August delivery traded at $1,203.80 an ounce on the Comex in New York from $1,204.90 on Friday. Most-active prices declined 1.7 percent last week.

“We expect continued strengthening of the dollar and gradual increase in US real rates to push gold prices further down,” Goldman Sachs Group Inc. said in a commodities report received on Monday. The bank forecasts futures at $1,180 in three months, $1,150 in six months and $1,050 in 12 months.

Silver for immediate delivery fell 0.3 percent to $17.0583, dropping for a second day. Platinum lost 0.2 percent to $1,144.30 an ounce. Palladium slumped 1 percent to $782.43 an ounce. -- Bloomberg