Gold Heads for First Weekly Drop in Three as Dollar Strengthens

By Rachel Graham

Sept. 5 (Bloomberg) -- Gold headed for its first weekly drop in three as the dollar strengthened against the euro, curbing demand for the metal as an alternative investment.

The relationship between gold and the euro-dollar exchange rate is strengthening, with a correlation of 0.7 so far this year, compared with 0.46 in the same period last year. A figure of 1 would mean the two moved in lockstep. The dollar rose for a seventh day against the euro.

``The bullish dollar has led gold to extend lower overnight,'' James Moore, an analyst at TheBullionDesk.com, wrote today in a report. ``We could see gold remain under pressure in the short term'' because of euro weakness, he wrote.

Gold for immediate delivery was little changed, rising 65 cents, or 0.1 percent, to $797.10 an ounce as of 8:54 a.m. in London. A close at that price would mean a weekly drop of 4.1 percent.

Standard Chartered Plc cut its gold forecast for the fourth quarter to $850, compared with a previous forecast of $925. It expects gold to exceed $1,000 in the second half of next year.

``We have maintained our view that prices will trend higher over the medium term,'' Standard Chartered analysts led by Helen Henton wrote today in a report.

Silver fell 7.5 cents, or 0.6 percent, to $12.74 an ounce.

Assets in Barclays Plc's iShares Silver Trust, the largest exchange-traded fund backed by the metal, climbed to a record yesterday.

Silver held by the company rose 0.2 percent to 6,524.93 tons on Sept. 4, according to data posted on the company Web site.

Among other metals for immediate delivery, platinum fell $32, or 2.3 percent, to $1,368 an ounce and palladium fell $3.50, or 1.2 percent, to $280.75 an ounce.

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