Gold futures extend weekly drop as Fed seen raising interest rates

Gold futures extended the largest weekly decline since November amid expectations US interest rates will rise next year, reducing demand for the precious metal as a store of value. Meanwhile, assets in the SPDR Gold Trust, the biggest bullion-backed ETF, rose to a three-month high on Friday.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in April fell by 0.7% to trade at $1 326.60 an ounce by 07:49 GMT. Prices shifted in a daily range between $1 334.90 an ounce and $1 322.90 an ounce.

Bullion has retreated from a six-month high of $1 392.60 an ounce on March 17 as turmoil over Ukraine left Russia and the West involved in their worst conflict since the end of the Cold War. The precious metal slid 3.5% this week, the most since the week ended November 22, snapping six week of advances.

While gold is up 10% this year amid concern the economic growth of the US may be slowing momentum and amid unrest in Ukraine, Goldman Sachs Group Inc. forecast further declines as the world’s biggest economy rebounds.

Jeffrey Currie, Goldman’s head of commodities research, said in a Bloomberg News interview this month that there are increasing chances, prices would reach $1,000 for the first time since 2009.

Fed stimulus outlook

Federal Reserve policy makers trimmed the bond-buying program by another $10 billion to $55 billion per month, last week. Moreover, Federal Reserve Chair Janet Yellen, said that the first increase in borrowing costs should come “around six months” after the end of the stimulus program. The monetary easing program is expected to be brought to an end this fall.

The Federal Open Market Committee also revised its forecasts, showing more policy makers predicted the main interest rate, now close to zero, would increase at least to 1% by the end of next year and 2.25% by the end of 2016, higher than previously forecast. The Committee also dropped the unemployment rate threshold for considering when to raise interest rates, making a transition to a wider set of data.

The stance of the central bank was seen as slightly more hawkish than investors expected, curbing demand for the precious metal as a store of value.

Market players are “not so concerned about the tapering part but rising U.S. interest rates,” said David Lennox, a resource analyst at Fat Prophets in Sydney, cited by Bloomberg. “Yellen’s comments will now be in the back of investors’ minds until we get into 2015.”

Assets in the SPDR Gold Trust, the biggest bullion-backed ETP, were increased to 816.97 tons on Friday, the strongest level in three months. Holdings in the fund are up 0.9% this year after it lost 41% of its assets in 2013 that wiped almost $42 billion in value. A total of 553 tons has been withdrawn last year.