Gold Slumps to Near Six-Week Low as Weak Oil Cuts Hedge Demand

By Glenys Sim

Aug. 5 (Bloomberg) -- Gold fell to the lowest in nearly six weeks in Asia as a decline in energy costs reduced demand for a hedge against accelerating consumer prices.

Bullion was also dragged lower by a sell-off in industrial metals and other commodities amid concern that demand will fall as global growth slows. Plunging prices for cocoa, natural gas and sugar sent the Reuters/Jefferies CRB Index of 19 commodities to its biggest one-day decline since March.

``Lower oil and base metals prices pulled the gold price lower,'' David Moore, commodity strategist at Commonwealth Bank of Australia in Sydney, said today in an e-mail.

Bullion for immediate delivery fell 0.3 percent to $891.90 an ounce at 1:12 p.m. in Singapore, the lowest since June 26. The metal closed below $900 for the first time in nearly six weeks yesterday. Silver for immediate delivery dropped 0.2 percent to $16.90 an ounce at the same time.

``The focus today will mostly be on the outcome of the FOMC meeting,'' Darren Gibbs, chief economist at Deutsche Bank AG in Auckland, said in an e-mailed report today. ``Price action seen in the commodity complex overnight provides reinforcement for those investors looking for the Fed to take a step back towards more neutral language.''

The dollar traded near a seven-week high against the yen and approached a six-week high against the euro before a Federal Reserve decision today when policy makers may leave interest rates on hold. Dollar-denominated gold tends to move in the opposite direction to the U.S. currency.

``Growing pessimism over global growth has not been sufficiently supportive despite the yellow metal's role as a hedge against economic risk, as deteriorating global growth has weakened other currencies against the U.S. dollar while also reducing consumer gold demand,'' Hussein Allidina, analyst at New York-based Morgan Stanley, said yesterday in a report.

Gold for June delivery on the Tokyo Commodity Exchange fell to 3,127 yen a gram ($899 an ounce) at 1:14 p.m. Singapore time.

Gold for December delivery on the Comex division of the New York Mercantile Exchange was down 0.9 percent at $899.90 an ounce in after-hours electronic trading.

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