Gold Headed for Second Weekly Decline as Dollar Climb Continues

By Feiwen Rong

Sept. 12 (Bloomberg) -- Gold headed for the second weekly decline on concern the dollar's climb to the highest in a year against the euro would erode the precious metal's appeal as a store of value.

Bullion tumbled 7.1 percent this week before today, while the dollar rose 1.9 percent against the euro. Gold usually moves in the opposite direction to the U.S. currency as investors tend to buy bullion as an alternative asset when the dollar falls.

``We should see some further downside risk in gold because the U.S. dollar could firm further, and the market is still mildly overbought so there's potential for more sell-off,'' Mark Pervan, analyst at Australia and New Zealand Banking Group Ltd., said today by phone from Melbourne.

Bullion for immediate delivery rose 0.7 percent to $751.55 an ounce at 1:07 p.m. in Singapore. It touched $736.70 an ounce yesterday, the lowest since Oct. 9, 2007. Silver for immediate delivery advanced 1.9 percent to $10.76 an ounce.

The U.S. currency was little changed at $1.3988 per euro from $1.3998 yesterday, after touching $1.3882, the strongest level since Sept. 18, 2007.

Gold's direction will also be affected by crude oil, Pervan said. ``Oil looks like it may be choppy in the near term in the active hurricane season and could slow gold's decline,'' Pervan said. Crude oil in New York advanced 0.4 percent to $101.26 a barrel at 1:08 p.m. in Singapore.

Long Positions

``We judge speculative net long positions greatly reduced in precious metals, although still long,'' said John Reade, analyst at UBS Ltd. in London, in a report yesterday. Yet the ``predominance of recently added short positions in precious and base metals does not necessarily mean the market will rally.''

Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, has fallen 4.3 percent this week to 614.4 tons. The fund reached a record 705.9 tons on July 11.

December-delivery gold added 1.3 percent at $755.20 an ounce in after-hours electronic trading on the Comex division of the New York Mercantile Exchange.

Gold for December delivery traded in Shanghai fell 0.2 percent to 169 yuan a gram ($769 an ounce) at the same time.

In Japan, gold for August delivery on the Tokyo Commodity Exchange gained 1.3 percent to 2,602 yen a gram ($754 an ounce).

To contact the reporter on this story: Feiwen Rong in Singapore at frong2@bloomberg.net