Bloomberg News

Gold Drops for Second Day as Equities Rally Amid Fed Speculation

September 01, 2011

Sept. 1 (Bloomberg) -- Gold declined for a second day as a rally in global equities trimmed investor demand for haven investments amid speculation the U.S. Federal Reserve may step up measures to stimulate growth.

Immediate-delivery gold fell as much as 0.5 percent to $1,817.22 an ounce, and traded at $1,818.10 by 2:19 p.m. Singapore time. The metal, which reached a record $1,913.50 on Aug. 23, climbed 12 percent in August, its best monthly performance since November 2009. December delivery bullion in New York shed as much as 0.7 percent to $1,819.40 an ounce, before trading at $1,820.60.

Asian stocks extended a global advance after reports yesterday showed U.S. business activity and factory orders expanded at a faster pace than economists forecast. The Dow Jones Industrial Average erased its 2011 losses as minutes released Aug. 30 from the Fed’s meeting in August showed some policy makers wanted to take more action to shore up the economy.

“A rally in equity markets as risk appetite improved weakened safe-haven bids for gold,” Australia & New Zealand Banking Group Ltd. analysts including Mark Pervan wrote in an e- mail today.

The amount of gold held by exchange-traded products declined for the eighth time in nine days to 2,144.457 metric tons yesterday, after touching a record 2,216.756 tons on Aug. 8, Bloomberg data show.

Still, if the Fed takes more steps to address sluggish economic conditions, “longer-term U.S. dollar weakness would be likely to lend eventual support to gold and limit near-term losses,” James Steel, an analyst at HSBC Securities USA Inc., wrote in a note to clients. The dollar gained for a third day against a six-currency basket.

Central Banks

Colombia increased its gold reserves by 2.3 tons in July, while Kazakhstan, Mexico and Tajikistan reduced holdings by a combined 4.5 tons in the period, according to data on the International Monetary Fund’s website. Colombia joins Thailand and South Korea in adding bullion to reserves this year.

“With sales from the CBGA nations still non-existent, we are expecting further net central-bank purchases over the rest of the year as Far Eastern banks in particular look to diversify their dollar holdings,” said Societe Generale analyst David Wilson, referring to the Central Bank Gold Agreement.

The European Central Bank and 18 other central banks in Europe agreed in August 2009 to sell no more than a combined 400 tons of gold a year through September 2014, marking a third five-year cap. In the second quarter of 2011, central bank and government-institution buying rose almost fivefold to 69.4 tons, taking the first-half total to 192.3 tons, according to the World Gold Council.

Spot silver dropped 0.4 percent to $41.3775 an ounce, while cash platinum rose 0.4 percent to $1,852.50 an ounce and palladium climbed 0.3 percent to $787.30 an ounce.

--Editor: Richard Dobson

To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net

To contact the editor responsible for this story: Richard Dobson at rdobson4@bloomberg.net


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