Bloomberg News

Gold Set to Drop as Lower Inflation, Dollar Strength Dims Demand

July 09, 2012

Gold may decline as slowing inflation from China to the U.S. and gains in the dollar damped demand for the metal as a hedge.

Spot gold was little changed at $1,586.32 an ounce at 9:10 a.m. in Singapore, after climbing yesterday for the first day in four. Holdings in the SPDR Gold Trust, the biggest exchange- traded product backed by bullion, fell to a one-month low of 1,275.46 metric tons yesterday, the company’s website showed.

China’s inflation eased to a 29-month low in June, rising 2.2 percent, data yesterday showed, while U.S. consumer prices fell in May by the most in more than three years, a report showed last month. Global inflation may ease to 2.1 percent by the end of 2012, half a percentage point less than the average central-bank target, according to JPMorgan Chase & Co.

“As global growth slows and central banks ease monetary policy further, this will bring inflation back and benefit gold, but till then, gold will continue to drift and take direction from the dollar,” said Xiang Nan, an analyst at CITICS Futures Co., a unit of China’s biggest listed brokerage.

The dollar gained to a two-year high against the euro yesterday before a meeting today of European Union finance ministers in Brussels to address the debt crisis. Bullion tends to move inversely to the greenback, which has gained 3.8 percent this year against a six-currency basket.

August-delivery gold fell 0.2 percent to $1,586 an ounce on the Comex in New York, after advancing 0.7 percent yesterday.

Spot silver dropped as much as 0.3 percent to $27.2575 an ounce and traded at $27.295. Cash platinum was at $1,444.25 an ounce compared to yesterday’s close of $1,443.50. Palladium was little changed at $584.25 an ounce, after a 1.2 percent rise yesterday.

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

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net


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