Gold sinks most in two weeks as traders await Fed rate guidance

[NEW YORK] Gold futures headed for the biggest drop in two weeks and mining stocks tumbled as traders pulled back bets before a speech by Federal Reserve Chair Janet Yellen on Friday that may give clues into the timing of US interest-rate increases.

The Fed chief will speak at the annual monetary-policy symposium in Jackson Hole, Wyoming. The next Fed policy decision will be announced Sept 21. Gold fell for the third time in four sessions, and traded below its 50-day moving average price or the first time since June. Shares of mining companies fell, with Goldcorp Inc and Barrick Gold Corp among the biggest decliners.

Bullion's 25 per cent rally in the first half of this year has stalled as investors await guidance on the timing of rate increases. Higher borrowing costs usually hurt the appeal of bullion, which doesn't pay interest.

Several policy makers signalled in recent days that tighter policy may be on the cards this year.

"It's very dicey to be long gold right now," George Gero, a managing director at RBC Wealth Management in New York, said in a telephone interview.

"We're expecting some more hawkish Fed speech."

Gold futures for December delivery dropped 1.2 per cent to settle at US$1,329.70 an ounce at 1:41 pm on the Comex in New York, the biggest decline since Aug 5.

The odds of a US rate increase by the end of this year were at 53 per cent, up from 36 per cent at the beginning of August, according to Fed Funds data.

The boards of directors at eight of the 12 regional Fed banks sought last month to increase the rate on direct loans from the Fed to 1.25 per cent from 1 per cent, the central bank said Tuesday. The votes can signal whether a bank's president favours a change in the main policy rate.

Goldcorp fell as much as 11 per cent and Barrick lost 6.3 per cent in Toronto as an index of gold miners headed for its steepest decline in almost a month.

Holdings in bullion-backed exchange traded funds increased 0.5 metric ton to 2,031.7 tons on Tuesday, data compiled by Bloomberg show.

Silver futures for December delivery slid 2 per cent to US$18.688 an ounce on the Comex.

On the New York Mercantile Exchange, platinum and palladium futures also fell. Trading in palladium futures was triple the 100-day average for this time.

BLOOMBERG