Gold Heads for Third Weekly Drop as Dollar Rises, Crude Falls

By Rachel Graham

Aug. 1 (Bloomberg) -- Gold headed for a third consecutive weekly drop as crude fell and the dollar strengthened against the euro, reducing the appeal of the metal as a hedge against inflation and as an alternative investment.

Oil has fallen 16 percent since reaching a record $147.27 a barrel on July 11, easing concern that inflation will quicken. The dollar has gained 2.3 percent against the euro.

``We've seen the dollar strengthening, which is negative for gold,'' Rodion Rahnayev, a senior dealer at trading-system operator Finotec Trading U.K. Ltd., said by phone from London. ``The sharp drop in oil'' also pushed gold lower, he said.

Gold for immediate delivery fell $3.58, or 0.4 percent, to $910.49 an ounce as of 12:19 p.m. in London. A close at that price would be a 2.1 percent weekly drop.

Futures for December fell $3.30, or 0.4 percent, to $919.40 an ounce in after-hours electronic trading on the Comex division of the New York Mercantile Exchange.

Traders are awaiting a U.S. government report on employment, scheduled for 1:30 p.m. London time, which may show that the U.S. lost jobs in July for a seventh consecutive month.

``If the data is positive, or if the dollar remains firm despite weak data as was the case yesterday, then gold could trade down towards the 200-day moving average, now at $890 an ounce,'' John Reade, the head of UBS AG metals strategy, wrote in a report today.

Gold Fields Ltd., Africa's second-biggest producer of the metal, said output will fall this quarter as it improves safety at mines following an accident that killed nine people in May.

Production Outlook

Output in the quarter through Sept. 30 will drop 5 percent from the preceding one, the Johannesburg-based company said. That will cause one or two months' delay in the company's target to increase annual production to 4 million ounces by December.

Gold fell to $909.50 an ounce in the morning ``fixing'' in London, used by some mining companies to sell production, from $918 at the previous afternoon fixing.

Among other metals for immediate delivery, silver dropped 18 cents, or 1 percent, to $17.57 an ounce. Platinum slid $45.50, or 2.6 percent, to $1,715 an ounce and palladium fell $7.50, or 2 percent, to $374.50 an ounce.

To contact the reporter on this story: Rachel Graham in London at rgraham13@bloomberg.net