Gold declines after biggest monthly advance in three years

[LONDON] Gold declined, after the biggest monthly advance in three years, amid prospects for higher US interest rates.

Federal Reserve Bank of St Louis President James Bullard said Jan 30 that investors are wrong to expect the central bank to postpone an interest-rate increase beyond mid-year.

Higher borrowing costs amid a strengthening economy curbs gold's appeal because the metal generally gives investors returns only through price gains.

Data due this week will probably show US employers added 235,000 workers last month and construction spending increased, according to economists surveyed by Bloomberg.

While bullion prices fell for the first week in four last week, money managers are the most bullish in more than two years.

"Steady GDP growth, further tightening in the labor markets, and a gradual increase in wage inflation support the FOMC's guidance for a first hike in mid-2015," Suki Cooper, an analyst at Barclays Plc in New York, wrote in a report on Monday. While prices should gradually decline, haven demand may help support gold in the near-term, she said.

Bullion for immediate delivery dropped 0.7 per cent to US$1,275.04 an ounce by 9:43am in London, according to Bloomberg generic pricing. It advanced 8.4 per cent in January. Gold for April delivery lost 0.3 per cent to US$1,275.50 on the Comex in New York.

Futures trading volume was 36 per cent below the average for the past 100 days for this time of day, according to data compiled by Bloomberg. Hedge funds and other speculators boosted their net-long position, or bet on higher prices, by 15 per cent in the week ended Jan 27, US Commodity Futures Trading Commission data show.

Silver for immediate delivery fell 1.2 per cent to US$17.041 an ounce in London. Prices climbed 9.8 per cent in January, the biggest monthly gain since June. Platinum dropped 1.1 per cent to US$1,227.75 an ounce on Monday and palladium was little changed at US$771.90 an ounce.

BLOOMBERG