Gold Declines for Third Day as Crude Oil Slips, Dollar Rallies

By Rachel Graham

Sept. 2 (Bloomberg) -- Gold fell the most in more than two weeks in London as the dollar strengthened and crude oil slid, reducing demand for the metal as an alternative investment and inflation hedge. Platinum also dropped.

The dollar rose to its highest in almost seven months against the euro on speculation oil prices at a five-month low will support economic growth in the U.S.

``Oil is dropping and taking all the commodities with it,'' Narayan Gopalakrishnan, a Geneva-based trader at MKS Finance, one of Switzerland's four bullion refiners, said by phone. ``If it continues, we will revisit lows in precious metals.''

Gold for immediate delivery fell as much as $26.46, or 3.2 percent, to $791.24 an ounce, the biggest daily decline since Aug. 15. It traded at $791.24 an ounce as of 2:04 p.m. in London.

Gold futures for December dropped $33.20, or 4 percent, to $802 an ounce in electronic trading on the Comex division of the New York Mercantile Exchange.

``If the dollar remains as strong as it is at the moment, we could see the $777 low from mid-August retested,'' Mario Innecco, a futures broker at MF Global Ltd. in London, wrote in an e-mail today. ``It could quite easily go there in the next day or two.''

Crude dropped as much as 8.7 percent in New York after Hurricane Gustav passed the U.S. Gulf Coast without causing major damage to offshore platforms. Yesterday's electronic trading is combined with today's for settlement purposes because of the U.S. Labor Day holiday.

``Oil is down so gold is under pressure,'' Afshin Nabavi, a senior vice president at MKS Finance SA, one of Switzerland's four bullion refiners, said by phone from Geneva.

Tradewaves Target

Tariq Mahmood, a Dubai-based technical analyst at online trader Global Tradewaves Ltd., said he expects gold to extend its decline.

``We have a short position and our target is $790,'' Mahmood said by phone from Dubai. A short position is a bet that prices will fall.

India and Turkey increased gold imports in August.

India, the world's biggest buyer of bullion, increased gold imports in August for the first time in 11 months as a decline in prices boosted demand for jewelry.

Purchases were about 98 to 100 metric tons, compared with 64 tons in the year-ago month, according to provisional data from the Bombay Bullion Association Ltd., a grouping of 230 traders.

Turkish gold imports advanced 70 percent to 47.2 metric tons in August, from a year ago, as prices fell.

The country has imported 133.9 tons of gold so far this year, the Istanbul Gold Exchange said on its Web site today. Turkey imported 230.8 tons last year, making it the world's fourth-biggest buyer of the metal.

Platinum, used in car exhaust systems, fell for a second day, dropping $62.50, or 4.3 percent, to $1,383 an ounce.

Japanese Cars

Platinum is trading lower on ``signs of slowing Japanese auto sales,'' James Moore, an analyst at TheBullionDesk.com, wrote today in a report.

Japanese domestic auto sales had their biggest monthly drop in almost 10 years, the Japan Automobile Dealers Association said yesterday.

Sales of cars, trucks and buses, excluding minicars, fell 15 percent to 193,902 last month from a year earlier, the group said. The drop, the most since December 1998, was amplified by two fewer business days compared with the year-earlier period.

ETF Securities Ltd., a provider of contracts tracking commodities, said its physical platinum fund attracted investment last week for the first time in eight weeks.

ETFS Physical Platinum attracted $2.9 million in investment in the week ending Aug. 29, ETF Securities said in a report today. ``There appears to be a turnaround in sentiment towards platinum, one of the hardest hit commodities in the recent commodity price correction,'' the report said.

Among other metals for immediate delivery, silver dropped 75.50 cents, or 5.6 percent, to $12.69 an ounce and palladium fell $8.75, or 2.9 percent, to $293 an ounce.

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