Bloomberg News

Gold May Fall in New York as Equity Advance Cuts Investor Demand

August 31, 2011

Aug. 31 (Bloomberg) -- Gold may decline in New York as European equities rise for a third day, cutting demand for the metal as an alternative investment.

Bullion advanced 2.1 percent yesterday after a statement showed some Federal Reserve policy makers favored more aggressive action to stimulate the economy during their Aug. 9 meeting and data showed consumer confidence slumped. European equities climbed to the highest level in almost two weeks.

“We might see a dip on the back of profit-taking and stronger equities,” Bernard Sin, head of currency and metal trading at bullion refiner MKS Finance SA in Geneva, said by phone today. Still, “physical demand is still fairly good. Gold’s still a traditional safe haven and people may have no other option than to buy gold if they don’t want exposure to risk.”

Gold for December delivery was little changed at $1,830.20 an ounce by 8 a.m. on the Comex in New York. Futures are up 12 percent this month, the most since November 2009, and reached a record $1,917.90 on Aug. 23. Immediate-delivery gold was 0.4 percent lower at $1,828.13 in London.

Bullion is in the 11th year of a bull market, the longest winning streak since at least 1920 in London, as investors seek to diversify away from equities and some currencies. The metal is up 29 percent this year, outperforming global stocks, commodities and Treasuries.

Minutes of the Fed meeting showed policy makers favored “more substantial” measures to boost the U.S. economy than the current pledge to hold rates at a record low for the next two years. While Fed policy makers meeting this month didn’t anticipate a recession, several said the recovery was “still somewhat tentative” and was “vulnerable to adverse shocks.”

Consolidation Period

“It’s really just been a consolidation after the price ran up to $1,900 so quickly,” Gavin Wendt, director at Mine Life Pty. in Sydney, said today by phone. “When you get those sorts of price rises, it means that the metal or any commodity is ripe for a period of some sort of consolidation, profit-taking first then some consolidation. The overwhelming sentiment with respect to gold is still positive.”

Exchange-traded-product holdings gained for the first time in eight days, increasing 0.9 metric ton to 2,144.9 tons, data compiled by Bloomberg show. Assets reached a record 2,216.8 tons on Aug. 8.

Colombia increased its gold reserves by 2.3 tons to 9.16 tons in July, according to data on the International Monetary Fund’s website. Kazakhstan cut reserves by 3.11 tons to 67.3 tons in the period, Mexico reduced its holdings by 0.175 tons and Tajikistan lowered reserves by 1.19 tons, the data show.

Silver for December delivery in New York fell 0.4 percent to $41.295 an ounce, cutting its gain to 3 percent this month. Platinum for October delivery was little changed at $1,856.50 an ounce and is up 4 percent this month. Palladium for December delivery rose 0.6 percent to $783.95 an ounce. It’s down 5.3 percent in August.

--Editors: John Deane, Nicholas Larkin

To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net; Phoebe Sedgman in Wellington at psedgman2@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net.


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