Yellen Surprises Gold Bulls in Retreat by Reviving Rally – by Megan Durisin (Bloomberg News – June 21, 2015)

Janet Yellen took the gold market by surprise. Bullion had its biggest rally in a month after Federal Reserve Chair Yellen and her fellow policy makers cut their long-term projections for U.S. interest rates. Money managers had anticipated officials would tighten monetary policy faster and reduced their net-long position in gold to a five-week low the day before the central bank’s statement.

The outlook for gradual rate increases sparked renewed investor interest, and more than $880 million was added last week to the value of assets in exchange-traded products backed by the metal. Higher rates curb bullion’s allure because the commodity doesn’t pay interest or give returns like other assets such as bonds and equities. The Bloomberg Dollar Spot Index fell for two straight weeks.

“The Federal Reserve has signaled they will be moving in a glacial manner, which is causing the U.S. dollar to decrease,” Chad Morganlander, a money manager at Stifel, Nicolaus & Co. in Florham Park, New Jersey, which oversees about $170 billion, said by phone. “There’s an upward bias to gold, and we believe it’s being directly related to dollar weakness.”

Morganlander expects bullion prices to stabilize before being dragged lower by improving U.S. economic growth.

Prices Rally

Futures climbed 1.9 percent to $1,201.90 an ounce last week, the largest advance since May 15. The Bloomberg Commodity Index of 22 raw materials dropped 0.7 percent, while the MSCI All-Country World Index of equities gained 0.2 percent. The Bloomberg Dollar Spot Index fell 0.8 percent. Bullion traded at $1,182.40 at 10:15 a.m. in New York on Monday.

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