Gold Drops Most in Week Since August on Ebbing Inflation Fears

By Halia Pavliva

Oct. 17 (Bloomberg) -- Gold fell in New York, ending its worst week in two months, as a report showed single-family home construction sank to the slowest pace in 26 years, easing inflation concerns as the economy cools. Silver also slid.

Last month, building began on the fewest U.S. single-family homes since February 1982, fueling concerns that an economic slump may deepen. Some investors sell gold and other precious metals to raise cash when the cost of credit rises and slowing economic growth reduces inflation pressures.

Gold fell ``on the back of drastically trimmed inflation expectations and the nauseating volatility in the global equity markets,'' Jon Nadler, a senior analyst at Kitco Metals & Minerals Inc. in Montreal, said today in a note to clients. The Dow Jones Industrial Average's trading range has exceeded 500 points for seven straight New York Stock Exchange sessions.

Gold futures for December delivery dropped $16.80, or 2.1 percent, to $787.70 an ounce on the Comex division of the New York Mercantile Exchange. The price slid 8.3 percent from last week, the biggest such decline for a most-active contract since Aug. 15.

Silver futures for December delivery declined 30 cents, or 3.1 percent, to $9.335 an ounce on the Comex. The price earlier sank to $9.09, the lowest for a most-active contract since Feb. 16, 2006. The price has dropped 37 percent this year, while gold is down 6 percent.

`Under Pressure'


``The lack of jewelry demand and ongoing deleveraging is likely to keep gold and other precious metals under pressure in the near term,'' John Reade, the head of metals strategy at UBS AG in London, said earlier today in a research report. ``Deleveraging may present some fantastic opportunities for long-term value investors that can live with negative short-term marks on their portfolio.''

UBS will review its short-term forecasts for gold and other precious metals on Oct. 20, Reade said.

Building began on 6.3 percent fewer U.S. homes last month from August, falling to an annual rate of 817,000 units, the Commerce Department said today in Washington. Building permits, a sign of future construction, dropped 8.3 percent to the lowest annual pace since November 1981.

Construction starts on single-family houses slid 12 percent to a 544,000 annual rate last month, the slowest since 1982.

U.S. stock indexes rose, indicating the Standard & Poor's 500 Index was headed for the biggest weekly gain since March 2003, as investors buoyed by Google Inc.'s strong earnings followed Warren Buffett's advice to get greedy in times of fear.

To contact the reporter on this story: Halia Pavliva in New York at hpavliva@bloomberg.net.