BLBG: Gold Drops to 2-Week Low as Dollar Rally Cuts Investment Demand
By Pham-Duy Nguyen
Dec. 5 (Bloomberg) -- Gold fell to the lowest in two weeks as the dollar climbed, eroding the appeal of the precious metal as an alternative investment. Silver also declined.
The dollar gained as much as 1.2 percent against a weighted basket of six major currencies. Treasury yields fell to records as investors sought the safety of government debt on speculation the recession will deepen. U.S. employers eliminated jobs in November at the fastest pace in 34 years, sending the jobless rate to the highest since 1993.
“The dollar has once again become king, and until that changes, gold is going to have a hard time,” said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago.
Gold futures for February delivery fell $13.30, or 1.7 percent, to $752.20 an ounce on the Comex division of the New York Mercantile Exchange. Earlier, the price touched, $741.20, the lowest since Nov. 20. This week, the metal plunged 8.2 percent, snapping a four-week rally.
Silver futures for March delivery declined 9 cents, or 0.9 percent, to $9.43 an ounce. The price dropped 7.8 percent this week and is down 37 percent this year.
Gold and other commodities often move in the opposite direction of the dollar. Gold is down 10 percent this year, heading for the first annual loss since 2000, while the greenback is headed for the first advance in three years.
“People don’t have faith in anything else but cash,” Zeman said.
Gold also fell as declines in equities forced some investors to sell the metal to raise cash, said Marty McNeill, a trader at R.F. Lafferty Inc. in New York.
‘Protect Other Assets’
“Gold has been moving with the stock market,” McNeill said. “Funds need to raise cash to protect other assets. Gold is one of the most liquid assets.”
The Standard & Poor’s 500 Index is down 6.1 percent this week, while the Reuters/Jefferies CRB Index of 19 raw materials has fallen 13 percent.
“Gold is caught in this deflationary cycle,” said Tom Hartmann, a commodity analyst at Altavista Worldwide Trading in Mission Viejo, California. “Demand for gold is just not there.”
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
