Gold Falls From 2-Week High on Speculation Fed Will Boost Rates

Sept. 20 (Bloomberg) -- Gold prices fell from a two-week high on speculation the U.S. Federal Reserve will increase its benchmark interest rate, boosting the dollar's value and the metal's cost for buyers holding euros.

The Fed will raise its rate for overnight loans between banks by a quarter point to 1.75 percent tomorrow, according to 21 of the 22 largest bond-trading firms. Gold, sold in dollars, fell 2.1 percent, the biggest decline in seven weeks, on June 29, the day before the Fed raised its benchmark lending rate for the first time since 2000 by a quarter point to 1.25 percent.

"As interest rates go up, gold will be less attractive," said Tim Gardiner, president of precious-metals trading at Mitsui & Co. in New York. The Fed probably will signal "continued, measured increase in interest rates," he said.

Gold futures for December delivery fell $1.50, or 0.4 percent, to $406.10 an ounce at 10:05 a.m. on the Comex division of the New York Mercantile Exchange. Prices rose to $407.60 on Sept. 17, the highest closing price for a most-active contract since Sept. 2.

A futures contract is an agreement to buy or sell a commodity at a specified price and date.

Speculators have reduced their holdings in gold futures in the past three weeks, reports from the U.S. Commodity Futures Trading Commission showed.

Hedge funds and other large speculators bought 54,856 more gold contracts on the Comex than they sold as of Sept. 14, down from 62,143 the week before, the commission said Sept. 17.

The Fed tomorrow "is likely to say that growth has gained some traction and that labor has picked back, though at a slower pace than in the spring," Alan Williamson, London-based head of commodity research at HSBC Bank USA, said in a report today. This "should leave the window open for another 25 basis-point hike in November."

Gold fell the most in more than a week on Sept. 13 after a report showed accelerating U.S. job growth for the first time in five months, spurring a dollar rally amid speculation of further interest rate increases.