Bloomberg News

Gold Drops as Dollar Rally Curbs Demand, Inflation Cools in U.S.

November 17, 2011

Nov. 16 (Bloomberg) -- Gold futures fell for the second time in three days as the dollar’s rally and receding inflationary pressure in the U.S. curbed demand for the precious metal as an alternative investment.

The cost of living unexpectedly fell in October, U.S. data showed today. The euro fell to the lowest in a month against the dollar before paring losses on concern that Europe’s debt crisis will hinder the global economy.

“The dollar’s continuing rise is hurting gold,” Sterling Smith, an analyst at Country Hedging Inc. in St. Paul, Minnesota, said in a telephone interview. “Inflation is cooling in the U.S., and that is not good news for gold.”

Gold futures for December delivery fell 0.4 percent to settle at $1,774.30 an ounce at 1:49 p.m. on the Comex in New York. The metal has dropped 7.8 percent from a record $1,923.70 on Sept. 6.

The dollar’s advance has curbed jewelry demand in India, the world’s biggest consumer, Marcus Grubb, the managing director of investment at the World Gold Council, said in a telephone interview from London.

Gold has advanced 25 percent this year, heading for the 11th straight annual gain. After the settlement, the price touched $1,760.70 in electronic trading.

The metal is being more widely used in the monetary system, either as collateral or reserves by central banks, Grubb said last month at a conference.

“We’re in a debt bubble, not a gold bubble,” he said.

Silver futures for December delivery dropped 1.8 percent to $33.822 an ounce. The metal has gained 9.3 percent this year.

--With assistance from Timothy Homan in Washington, Nicholas Larkin in London and Elizabeth Campbell in Chicago. Editor: Patrick McKiernan

To contact the reporters on this story: Debarati Roy in New York at droy5@bloomberg.net; Claudia Carpenter in London at ccarpenter2@bloomberg.net

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


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