Gold Heads for Biggest Weekly Drop in Over 28 Years on Dollar

By Marianne Stigset

Oct. 24 (Bloomberg) -- Gold headed for its steepest weekly decline in more than a quarter-century in London as the rising dollar and plunging equities curbed investor demand for the precious metal.

Gold has dropped as much as 13 percent this week, the biggest drop since the week ended March 14, 1980. Trading in futures on the Standard & Poor's 500 Index and the Dow Jones Industrial Average slumped by their daily limit on deepening concern the global economic slump will crimp earnings. The FTSE 100 Index sank 9.1 percent in London and the pound slid the most versus the dollar since 1971 after the U.K. economy shrank for the first time since 1992.

``It's a case of throwing the baby out with the bath water -- everything is just being sold,'' said Mark O'Byrne, managing director of brokerage Gold and Silver Investments Ltd. in Dublin. ``There's wholesale deleveraging going on. People are just going to cash.''

Gold for immediate delivery fell as much as $39.04, or 5.4 percent, to $682.41 an ounce, the lowest in over a year compared with intraday prices. It stood at $695.65 an ounce as of 12:34 p.m. in London. Gold futures for December dropped $18.70, or 2.6 percent, to $696 in electronic trading on the Comex division of the New York Mercantile Exchange.

``Any financial market movements are being interpreted as bearish for precious metals,'' Walter de Wet, an analyst at Standard Bank Ltd. in Johannesburg, wrote in a note today. ``The worst culprit is the greenback.''

Stocks Slump

Gold slipped to $692 an ounce in the morning ``fixing'' in London, used by some mining companies to sell production, from $720 at the previous afternoon fixing.

The MSCI World Index lost 3.7 percent, extending this week's retreat to 7.7 percent. The index has plunged 45 percent in 2008, heading for the biggest yearly drop on record, as credit-related losses and writedowns topped $660 billion in the worst financial crisis since the Great Depression.

Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, has stalled after reaching a record 770.6 tons on Oct. 10. Holdings fell to 747.1 metric tons yesterday.

``The decline in the gold price is not only linked to a further strengthening in the U.S. dollar but also evidence that physical buying of gold via ETFs is beginning to fade,'' Deutsche Bank AG analysts led by Michael Lewis wrote in a report today. ``We estimate fair value for gold to be $600-$620 an ounce.''

Platinum Falls

ETF Securities Ltd., a provider of contracts tracking commodities, said the gold assets held by the company fell to 1.478 million ounces from 1.479 million ounces the previous day, according to data posted on the company's Web site.

Platinum declined $32.15, or 4 percent, to $778.35 an ounce, more than a four-year low.

Platinum futures in Tokyo sank 16 percent this week amid mounting concern that plunging auto sales would cut use in catalytic converters. Toyota Motor Corp., the world's second- largest automaker, reported its first drop in quarterly sales in seven years today. Volvo AB, the second-biggest heavy-truck maker, expects a 10 percent cut in the North American market this year.

``The most important factors for industrial metals are construction and auto manufacturing and those two have been hit,'' Commerzbank AG analyst Eugen Weinberg said in Frankfurt.

Among other metals for immediate delivery, silver dropped as much as 99.75 cents, or 10 percent, to $8.6825 an ounce, the lowest since December 2005. Palladium slipped $1.25, or 0.7 percent, to $170.75 an ounce.

Platinum fell to $768 an ounce in the morning fixing in London from $790 at the previous afternoon fixing. Palladium gained to $172.00 an ounce, from $171.00.

To contact the reporter on this story: Marianne Stigset in Oslo at mstigset@bloomberg.net