Gold Falls Most in Two Months as Dollar’s Rebound Erodes Demand

(Bloomberg) -- Gold fell the most in more than two months, closing below $1,000 an ounce, as the dollar’s rebound reduced demand for the precious metal as an alternative asset. The dollar climbed from a one-year low against a basket of six major currencies. Before today, gold advanced 15 percent this year, while the greenback dropped 6.5 percent.
“You’re seeing significant selling in gold because the dollar is beginning to rise,” said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois.

Gold futures for December delivery fell $15.50, or 1.5 percent, to $998.90 an ounce on the Comex division of the New York Mercantile Exchange, the steepest decline for a most- active contract since July 8. The U.S. Dollar Index, the six-currency basket that includes the euro and yen, jumped as much as 1.3 percent, the biggest gain in more than three months. Silver futures for December delivery fell 61.5 cents, or 3.6 percent, to $16.295 an ounce on the Comex. It was the sharpest drop for a most-active contract since Aug. 17.

The Fed yesterday kept its target lending rate at a record low range of zero to 0.25 percent, and policy makers suggested they can control the threat of inflation. While the economy has “picked up,” the central bank’s planned asset purchases will help ensure a “gradual return to higher levels of resource utilization,” the Fed’s Open Market Committee said yesterday. “Based on the comments by the Fed, it seems they’re going to withdraw the economic stimulus in a timely fashion,” Kaplan said. “That would contain the fear of inflation, which was why gold had rallied this year.”

Chart Analysis
Gold’s decline may accelerate after prices failed to rally closer to the record, UBS AG said in a report yesterday. Technical analysis shows the bullish trend can only be maintained should prices surpass $1,032.50, UBS said. The metal reached $1,025.80 on Sept. 17. Gold jumped to a record $1,033.90 on March 17, 2008.

The Fed’s statement is “theoretically negative for gold, because they took away the wording on inflation, but there wasn’t any talk of rate hikes,” said Tom Pawlicki, an MF Global Inc. metals analyst in Chicago. Gold may climb to $1,100 early next year, he said. A rate increase would boost demand for the U.S. currency, analysts say.