Demand dip for gold

A stronger dollar and lower oil prices have made gold unattractive

Gold fell as a stronger dollar and lower oil prices curbed the metal’s appeal as an alternative investment and inflation hedge. Silver also slid.

Gold futures dropped 2 percent for the week, the second straight decline. The metal typically falls when the dollar rises, and the US currency is up 0.4 percent against the euro for the week. Oil touched the lowest since May 19 in New York, and marked its sharpest weekly drop since January. “Certainly the shock drop in oil has reminded people that inflation is not a big threat right now,” Dan Smith a Standard Chartered analyst in London, said. “The correlation with the dollar is still pretty high.” Gold futures for August delivery dropped $3.70, or 0.4 percent, to $912.50 an ounce on the New York Mercantile Exchange’s Comex division. The most-active contract fell 2 percent this week, the fifth such decline in the past six weeks.

Bullion for immediate delivery in London slipped 45 cents to $911.90 an ounce. The metal advanced to $913 an ounce in the London afternoon “fixing,” the price used by some mining companies to sell their output, from $910 in the morning fixing. Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, was unchanged at 1,109.81 metric tons as of yesterday, the company’s web site showed. The fund fell by 10.38 tons on July 8, the most since April.

“The surplus that is mounting in the gold market puts the onus squarely on the back of investment demand,” Jon Nadler, a Kitco senior analyst in Montreal, said today in a report. “This market needs a global financial crisis instant-replay, and it needs it now.”

Oil prices
Crude oil, used by some investors as an indicator of the outlook for inflation, slid 10 percent for the week, the steepest such drop since January 30. Futures for August delivery settled at $59.89 a barrel, the first close below $60 since May 19, sliding on concern that a prolonged global recession will curb demand for energy.

The dollar gained as much as 1 percent against the euro, prompting some investors to sell the metal in favor of cash. “Liquidation of long positions by fund managers also accelerated the decline after gold broke below technical support at $915,” an ounce, Pradeep Unni, a Richcomm Global Services analyst. “Every rally has been repeatedly utilised as an opportunity to sell higher.” James Moore, an analyst at TheBullionDesk.com, said that “with tame inflation readings and ETF and jewellery demand still slack, we maintain our bearish short-term outlook.” 21 of 32 traders, investors and analysts surveyed by Bloomberg News said gold will fall next week. Five forecast higher prices and six were neutral.

Silver futures for September delivery slid 29 cents, or 2.2 percent, to $12.645 an ounce in New York. Earlier, the most-active contract touched $12.51, the lowest since May 4.

“Should gold fall afresh, buying-support from the industry and private investors – which we have observed it the recent past – will not be able to prevent the white metal from falling further,” Wolfgang Wrzesniok-Rossbach, the head of marketing and sales of Heraeus Metallhandels, said in a report. “Support would be at $11.80 an ounce,” he said, describing the price at which buying may swell.

The authors are Bloomberg News columnists. The opinions expressed are their own