Gold Falls to Lowest This Year in Asian Trading as Dollar Gains

By Glenys Sim

Aug. 12 (Bloomberg) -- Gold dropped to the lowest this year after the dollar rallied, reducing the precious metal's appeal as an alternative investment to the U.S. currency. Gold futures in Shanghai and Tokyo fell by the daily limit.

Gold has erased this year's gains and has dropped 22 percent from its March record of $1,032.70 an ounce amid a global sell- off in commodities. A drop in crude oil to near a 14-week low has lowered bullion's attraction as an inflation hedge.

``The sharp correction in commodity prices and the rally in the U.S. dollar are unwinding the extreme oversold position of global financials,'' Sean Darby, head of regional strategy at Nomura Holdings Inc., said in an e-mail today. ``Acknowledgement of slowing growth and expectations of rate easing in Australia and Europe have eroded support for commodities.''

Bullion for immediate delivery fell $21.55, or 2.6 percent, to $802.27 an ounce, the lowest since Dec. 21, and was at $809.15 at 2:38 p.m. in Singapore. Earlier, prices dropped to within 0.3 percent of $800 an ounce, a crucial support. Silver for immediate delivery declined as much as 4.4 percent to $14.02 an ounce.

So-called support and resistance levels are points where buy or sell orders cluster on charts used by traders to predict price direction.

Technical charts signal further losses in gold as the dollar rallies, analysts at Barclays Capital Inc., led by Jordan Kotick, said in a report today. The dollar traded near a 5 1/2-month high against the euro today.

``In the sessions ahead, we look for greater weakness toward $800 before renewed signs of basing,'' wrote Kotick. ``Bulls need to regain $872 on a closing basis to indicate a turn in the near- term trend.''

Comex Gold

Still, speculative long positions, or bets prices will rise, outnumbered short positions by 163,728 contracts on the Comex division of the New York Mercantile Exchange, the Washington- based commission said in its Commitments of Traders report Aug. 8.

Gold for December delivery dropped 1.6 percent to $816.30 an ounce in after-hours electronic trading on the Comex division of the New York Mercantile Exchange at 2:40 p.m. in Singapore.

Gold for December delivery on the Shanghai Futures Exchange fell by the 5 percent daily limit to 182.82 yuan a gram ($828 an ounce). This is the lowest for a most-active contract since the exchange started trading gold futures on Jan. 9.

``Compared with international prices, prices in China are still relatively high, which is why the daily limit was hit,'' Steven Zhu, research manager at Shanghai Tonglian Futures Co., said by e-mail today. ``While the domestic market will continue to take direction from the international market, we might see some physical buyers enter at lower levels to limit the losses.''

In Japan, gold for June delivery on the Tokyo Commodity Exchange also fell by the 150 yen daily trading limit to 2,922 yen a gram ($826 an ounce).

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