Dollar rally against euro hits gold hard

Gold fell, capping the biggest monthly decline since April 2004, as the dollar climbed against the euro, eroding the appeal of the metal as an alternative investment.

The dollar headed for the biggest monthly gain since the European currency began trading in 1999. Gold generally moves in tandem with the euro. The metal has tumbled 19 per cent from a record $1,033.90 an ounce on March 17, partly because the Federal Reserve ended a series of reductions in benchmark borrowing costs.

“Gold is cooked,’’ said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois. “Sell every rally. The Fed is not going to raise rates, but that doesn’t matter. Rates in other countries are going to come down.’’

On Friday, gold futures for December delivery fell $2, or 0.2 per cent, to $835.20 an ounce on the Comex division of the New York Mercantile Exchange, leaving the metal down 9.5 per cent in August. The metal still gained 0.2 per cent this week.

Silver futures for December delivery were little changed at $13.707 an ounce. In August, the price plunged 22 per cent, the most since April 2004. The metal climbed 0.9 per cent this week. Gold is down 0.3 per cent this year, while silver has dropped 8.1 per cent.

The US federal funds rate is at 2 per cent, down from 5.25 in September 2007. The European Central Bank raised its main financing rate to 4.25 per cent in July after keeping it steady at 4 per cent since June 2007.

Dollar ‘correction’

“Any pullback in the dollar is going to be seen as a correction and not a resumption of a bear market, so people are still going to sell gold,’’ said Tom Hartmann, a commodity analyst at Altavest Worldwide Trading Inc in Mission Viejo, California.

Gold traded as high as $844.20 today before declining as crude oil pared gains. Oil rose as much as 2.7 percent to $118.76. The price reached a record $147.27 on July 11.

Energy prices have climbed this week on concern Hurricane Gustav will disrupt US petroleum production in the Gulf of Mexico.

“If the hurricane does head into the Gulf and cause damage, that would definitely support gold,’’ Hartmann said.

The Comex will be closed on September 1 for the Labor Day holiday.