Gold Falls Most in 6 Weeks as Commodities Slump, Dollar Rallies
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By Pham-Duy Nguyen
Jan. 12 (Bloomberg) -- Gold prices fell the most in six weeks as the dollar’s climb and slumping commodity costs reduced demand for the precious metal as a hedge against inflation. Silver also declined.
The dollar gained as much as 0.7 percent against a weighted basket of six major currencies and the Reuters/Jefferies CRB Index of 19 raw materials fell as much as 3.9 percent. Gold’s gains last year were the smallest since 2004 as commodities had their worst year in a half-century and the dollar advanced for the first time since 2005.
“The deflationary scenario is still incredibly intact, even though the government has thrown trillions of dollars at it,” said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois. “Gold has a long ways to go down.”
Gold futures for February delivery fell $34, or 4 percent, to $821 an ounce on the Comex division of the New York Mercantile Exchange, the biggest drop since Dec. 1 for a most- active contract. Earlier, the metal touched $817.10, the lowest since Dec. 12.
Silver futures for March delivery dropped 57 cents, or 5 percent, to $10.75 an ounce. The metal fell 24 percent last year while gold gained 5.5 percent.
Gold may have to catch up with other commodities as a deep recession forces raw-material prices lower, Kaplan said.
Oil has plunged 74 percent from a record in July, while platinum has dropped 58 percent from the all-time high in March. Gold has declined 21 percent from a record in March.
A rally by the dollar will hurt demand for gold, analysts said. The euro dropped as much as 1.4 percent today against the greenback on speculation that the European Central Bank will cut its main interest rate this week to boost the economy.
Borrowing Costs
The Federal Reserve has slashed U.S. bank borrowing costs to zero to 0.25 percent, while the ECB’s benchmark is 2.5 percent.
“The region cannot afford further hawkish posturing from the ECB,” said Jon Nadler, a senior analyst at Kitco Inc. in Montreal.
Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, rose 0.9 percent last week to 787.6 metric tons. The fund’s assets jumped 24 percent in 2008.
Hedge-fund managers and other large speculators increased net-long positions in Comex gold futures for the fourth straight week, Commodity Futures Trading Commission data showed on Jan. 9.
Speculative long positions, or bets prices will rise, outnumbered short positions by 133,604 contracts in the week ended Jan. 6, agency data showed.
“Net-long positions in gold and platinum are rather extended, while those of silver and palladium are less threatening,” said John Reade, a UBS AG analyst in London. Last week, Reade said gold will trade at $800 within one to three months.
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
Last Updated: January 12, 2009 14:20 EST
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confusing. all my reading points to the fall of the dollar.
yet, it becomes the safe haven of all currency. perhaps the world cannot be rid of it's dependency on the greenback.
as someone points out, if the world dun use USD... then what do they use?
RMB? unlikely, as the monetary control is too tight.
Euro? when they can hardly work together?
Pound? legacy...
Swiss Francs? only when you are there.
Japanese Yen?
USD still comes out up. no question about it. even if the Feds are printing money faster than people can consume.
weird.
