Gold Drops in London as Dollar Strengthens, Crude Oil Declines

By Marianne Stigset

July 14 (Bloomberg) -- Gold declined for the first day in four in London, as a stronger dollar and weaker energy prices reduced the appeal of commodities as a hedge against inflation.

Gold has had a correlation of 0.69 to the euro-dollar exchange rate this year, up from 0.58 last year, Bloomberg data show. A figure of 1 would mean the two move in lockstep. The dollar rose for the first time in four days against the euro after U.S. Treasury Secretary asked to buy stakes in Freddie Mac and Fannie Mae to restore confidence in financial markets.

``What policy makers like the Treasury and the Federal Reserve don't want to see is a sharp and disorderly drop in the dollar,'' said Mario Innecco, a futures broker at MF Global Ltd. in London, adding that gold also fell because ``oil is down.''

Gold for immediate delivery dropped $5.95, or 0.6 percent, to $958.25 an ounce by 10:39 a.m. in London. Futures for August delivery fell $1.40, or 0.2 percent, to $959.20 on the Comex division of the New York Mercantile Exchange.

Bullion gained 3.3 percent last week, and has advanced 15 percent so far this year.

``After posting strong gains last week the yellow metal may look to carry out some consolidation at the start of this week,'' James Moore, an analyst at TheBullionDesk.com in London, wrote in a report today.

Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by gold, advanced to a record 705.9 metric tons on July 10. Holdings in the fund rose from 659.91 tons, according to data posted on the company's Web site July 11.

Exchange-Traded Funds

``The moves in ETF holdings is evidence that investors have become much more worried about systemic risk'' in financial markets and are seeking a haven in gold, UBS AG said in a note to investors today. The bank raised its one-month forecast to $1,000 an ounce, from $900, and its three-month estimate to $1,050, from $850.

Crude oil slipped 1.3 percent after rallying to a record of $147.27 a barrel last week.

``Given the backdrop of record oil, rising tensions in the Middle East and deepening financial market woes, we could soon see gold establish a base above $1,000 an ounce,'' Moore wrote.

Gold may climb for a fifth straight week on speculation slumping equities will spark demand for a haven, according to a Bloomberg survey. Eighteen of 25 traders, investors and analysts from Mumbai to Chicago on July 10 and July 11 advised buying gold. Five said to sell, and two were neutral.

A majority of analysts surveyed July 3 and July 4 anticipated gold's gain last week. The survey has forecast prices accurately in 134 of 219 weeks, or 61 percent of the time.

Among other metals for immediate delivery, platinum dropped $16.50, or 0.8 percent, to $2,016.50 an ounce, palladium declined $2.25, or 0.5 percent, to $451 an ounce and silver fell 12.5 cents, or 0.7 percent, to $18.69 an ounce.

To contact the reporter on this story: Marianne Stigset in Oslo at mstigset@bloomberg.net