Gold Falls on Reduced Demand for Inflation Hedge; Silver Drops

By Pham-Duy Nguyen

Sept. 10 (Bloomberg) -- Gold fell, touching the lowest price since October, on speculation a drop in commodity prices and a stronger dollar will reduce demand for the precious metal as a hedge against inflation. Silver also declined.

The Reuters/Jefferies CRB Index of 19 raw materials tumbled for a ninth straight day and is down as much as 24 percent from a record reached in July. Gold has declined 24 percent from an all-time high in March and the euro is trading 12 percent below its July peak against the dollar.

``Gold's diseased,'' said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. ``A lot of the inflationary fear has eased because we've seen energy prices and commodity prices come spiraling down. The dollar has not given up a lot of its gains. That's leaving traders up in the air about what to do with gold. I wouldn't want to touch it with at 10-foot pole.''

Gold futures for December delivery fell $8.90, or 1.1 percent, to $783.10 an ounce at 9:06 a.m. on the Comex division of the New York Mercantile Exchange. Earlier, the price reached $766.80, the lowest for a most-active contract since Oct. 25.

Silver futures for December delivery fell 22 cents, or 1.9 percent, to $11.495 an ounce on the Comex.

Before today, silver fell 21 percent this year, while gold dropped 5.5 percent.

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