Gold Futures Fall on Interest-Rate Outlook; Silver Declines

By Pham-Duy Nguyen

May 9 (Bloomberg) -- Gold fell, erasing earlier gains, on speculation the Federal Reserve will keep U.S. interest rates steady to curb inflation. Silver also dropped.

Crude-oil futures reached $126.20 a barrel today, setting a record for the fifth straight session, and corn rallied to an all-time high. Gold advanced 31 percent in 2007 as soaring fuel and food expenses spurred a jump in consumer prices, while banks' borrowing costs started declining in September. The metal is down 15 percent from a record $1,033.90 an ounce on March 17.

``The Fed has made it very clear that they're done for quite a while in terms of dropping rates,'' said Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois. ``The Fed is going to raise rates by the end of the year to fight inflationary expectations.''

Gold futures for June delivery dropped $6, or 0.7 percent, to $876.10 an ounce at 10:51 a.m. on the Comex division of the New York Mercantile Exchange. Before today, the metal climbed 5.3 percent this year.

Silver futures for July delivery dropped 21 cents, or 1.2 percent, to $16.66 an ounce. Before today, the price advanced 13 percent this year.

Investors also sold gold because the metal has failed to keep pace with oil's advances, analysts said.

``Technically, gold is in a downward trend,'' said Matt Zeman, a metals trader at LaSalle Futures Group Inc. in Chicago. ``A lot of traders will be selling into any rallies at this point because gold is trading below most of its moving averages.''

The metal still headed for the first weekly gain in a month.

To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.