Gold Falls to One-Year Low as Dollar Rallies; Silver Declines

By Pham-Duy Nguyen

Oct. 22 (Bloomberg) -- Gold fell to the lowest price in more than a year as the dollar jumped, eroding the appeal of the metal as an alternative investment. Silver also declined.

Gold has dropped 12 percent this year as the dollar gained 11 percent against a weighted basket of six major currencies. The Reuters/Jefferies CRB Index of 19 raw materials today dropped to the lowest in four years. Gold reached a record in March as the dollar headed to an all-time low against the euro.

``The strengthening dollar is pressuring gold and commodity prices in general,'' said Tom Hartmann, a commodity analyst at Altavest Worldwide Trading Inc. in Mission Viejo, California. ``People aren't tossing dollars out the window or giving up on paper currencies, so gold is just acting like another commodity at this point.''

Gold futures for December delivery fell $32.80, or 4.3 percent, to $735.20 an ounce on the Comex division of the New York Mercantile Exchange. Earlier, the price reached $720, the lowest for a most-active contract since Sept. 18, 2007. Gold rose to $1,033.90 on March 17, the highest ever.

Silver futures for December delivery declined 61.5 cents, or 6.1 percent, to $9.46 an ounce. The price is down 37 percent this year, after seven straight annual gains.

The dollar rose as much as 2.3 percent today against the basket of currencies, reaching the highest since November 2006.


`Relentless' Selling

``The selling of gold has been relentless,'' Dennis Gartman, an economist and editor of the Gartman Letter, said in his daily report. ``Commodity prices are very weak as the dollar and the yen are very strong and liquidation is the order of the day.''

Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, fell to 755.6 metric tons yesterday, down 1.9 percent from a record 770.6 ton Oct. 10.

Gold may fall to $700 as the dollar makes further gains against the euro, Hartmann said.

The euro fell below $1.28 for the first time since November 2006 on speculation the European Central Bank will cut borrowing costs at a faster pace than the Federal Reserve. The federal-funds rate is at 1.5 percent, down 3.75 percentage points from September 2007. The ECB's main refinancing rate is at 3.75 percent after an Oct. 8 cut from a seven-year high of 4.25 percent.

``There's just a perception that the U.S. has better tools to deal with the financial crisis than Europe,'' Hartmann said. ``There are too many competing interests in the euro region to come to a decision quickly.''

The 15-nation currency reached a record $1.6038 on July 15.

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