Bloomberg News

Gold Falls to One-Week Low as Stronger Dollar Curbs Metal Demand

November 02, 2011

Nov. 1 (Bloomberg) -- Gold futures fell to a one-week low as worsening prospects for Europe’s debt crisis led to a rally in the dollar, eroding demand for the precious metal as an alternative investment.

The greenback rose as much as 2 percent against a basket of six currencies, the most since December 2008, on speculation that the European Central Bank will cut interest rates to revive a slowing economy and on renewed concern that Greece will default. Gold rose 6.3 percent last month, touching a five-week high on Oct. 28, as the dollar fell 3 percent.

“We are seeing risk-off trade,” Fred Schoenstein, a trader at Heraeus Precious Metals Management in New York, said in a telephone interview. “Investors are piling back into the dollar.”

Gold futures for December delivery retreated 0.8 percent to settle at $1,711.80 an ounce at 1:50 p.m. on the Comex in New York, after earlier dropping to $1,681.20, the lowest since Oct. 25. Today was the third straight decline.

Greece’s Prime Minister George Papandreou pledged to hold a referendum on the European Union’s latest bailout plan for the nation, days before Group of 20 leaders gather Nov. 3-4 for a summit in Cannes, France, to discuss the debt crisis. The call for a referendum and a parliamentary confidence vote raised the prospect of derailing the European bailout effort and pushing Greece into default.

‘Fantastic Flows’

The stronger dollar is canceling out bullish signs of increased purchases of exchange-traded products backed by bullion and “fantastic flows” of cash into gold bars, Ross Norman, the chief executive officer of London bullion brokerage Sharps Pixley Ltd., said today in a report. Holdings in ETPs backed by gold gained 2.6 metric tons to a five-week high of 2,235.9 tons yesterday, data compiled by Bloomberg show.

Silver futures for December delivery slumped 4.7 percent to $32.731 an ounce on the Comex, the biggest decline for a most- active contract since Sept. 23.

On the New York Mercantile Exchange, platinum futures for January delivery slipped 1.6 percent to $1,582 an ounce, dropping for a second straight day.

Palladium futures for December delivery fell 2.5 percent to $635 an ounce, declining 5.2 percent in three straight declines.

--With assistance from Glenys Sim in Singapore. Editors: Daniel Enoch, Steve Stroth.

To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net; Debarati Roy in New York at droy5@bloomberg.net.

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net


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