Gold Futures Rise as U.S. Equities Erase Losses, Silver Slides

By Pham-Duy Nguyen

Oct. 27 (Bloomberg) -- Gold rose after U.S. equity indexes erased earlier declines, reducing the need to sell the precious metal to cover losses in other markets. Silver fell.

Gold fell 7.3 percent last week as the Standard & Poor's 500 Index lost 6.8 percent. The metal touched $681 an ounce on Oct. 24, the lowest since Sept. 4, 2007, as share indexes plunged worldwide on concern that a global recession may damp demand for raw materials. The S&P fell as much as 2.4 percent today before rebounding to gain as much as 1.9 percent.

``As stocks rally, it eliminates some of the liquidation pressures that we've seen in gold,'' said Frank McGhee, the head dealer of Integrated Brokerage Services in Chicago. ``People have been selling metals to fund losses in other markets.''

Gold futures for December delivery rose $12.60, or 1.7 percent, to $742.90 an ounce on the Comex division of the New York Mercantile Exchange. Before today, gold dropped 29 percent from a record $1,033.90 on March 17.

Silver futures for December delivery declined 10 cents, or 1.1 percent, to $9.195 an ounce in New York. The price has fallen 38 percent this year.

Once investors stop selling assets to raise cash, or deleveraging ends, ``gold and silver will probably rise very sharply,'' said Jeff Christian, managing director of CPM Group in New York.

Gold may fare better than other commodities, analysts said. The metal is down 11 percent this year while the Reuters/Jefferies CRB Index of 19 raw materials has fallen 27 percent, including a 33 percent decline in crude oil.

`Stronger Assets'

``Gold is one of the stronger assets amongst commodities,'' said Marty McNeill, a trader at R.F. Lafferty Inc. in New York. ``There's bargain-hunting at these low levels.''

Gold may find buyers at $675 and faces a sell-off at $750, John Reade, a UBS AG metals strategist, said in a note today.

``The selling pressure from deleveraging, disinvestment and the dollar may now be squaring off against safe-haven and jewelry demand,'' said Reade.

Still, a stronger dollar may hurt demand for the precious metal. The U.S. Dollar Index, the weighted basket that includes the euro and yen, rose as much as 1.6 percent today, before paring gains.

Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, dropped 1.2 percent to 747.1 metric tons last week from Oct. 17.

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