Gold, Silver Fall as Dollar Gain Erodes Appeal of Metals Hedge

By Pham-Duy Nguyen

July 24 (Bloomberg) -- Gold fell for a third straight day as the dollar rose to a two-week high against the euro, eroding the appeal of the precious metal as an alternative investment. Silver also fell.

The dollar rose as much as 0.5 percent against the euro today, extending a 1.4 percent gain in the previous two sessions. Gold, priced in dollars, generally moves in the opposite direction of the currency. The metal reached a record $1,033.90 an ounce on March 17.

``The dollar did have a solid bounce,'' said Ralph Preston, a commodity analyst at Heritage West Futures Inc. in San Diego. ``The buck is holding the line. The gold market is catching its breath at the moment.''

Gold futures for August delivery fell 50 cents to $922.30 an ounce on the Comex division of the New York Mercantile Exchange. The metal lost 4.2 percent in the previous two sessions and traded as low as $915.90 earlier today.

Silver futures for September delivery slid 16 cents, or 0.9 percent, to $17.298 an ounce. Silver still has risen 16 percent this year, while gold advanced 10 percent.

The dollar rallied after a report showed a drop in business confidence in Germany, paring expectations that the European Central Bank will raise rates again this year.

The ECB raised its main refinancing rate to 4.25 percent on July 3. The Federal Reserve reduced the U.S. benchmark borrowing cost seven times since September from 5.25 percent to 2 percent in April. The euro reached a record $1.6038 on July 15 and has gained 7.3 percent this year.

Oil Rebound

Gold's losses were limited as crude-oil futures rebounded late in the session. The metal has tracked wide swings in energy costs this week, declining as oil sank 5 percent in the previous two sessions.

``The fundamentals haven't changed for oil and gold,'' Preston said. ``The washout in the metals has, for the most part, run its course. I'm comfortable wading back in.''

Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, has fallen 4.6 percent to 673.4 metric tons in the past two days. The fund reached a record 705.9 tons on July 11.

To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.