Gold Prices Fall as Homebuilding Drops, Easing Inflation Fears

By Halia Pavliva

Oct. 17 (Bloomberg) -- Gold fell, heading for the biggest weekly drop 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.

Work started on the fewest single-family homes in the U.S. in September since February 1982, fueling concerns an economic slump will deepen. Some investors sell gold and other precious metals to raise cash when the cost of credit rises and slowing economic growth eases inflation concerns.

``Gold prices appeared set to record their largest weekly loss in over two months 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.

Gold futures for December delivery fell $11.50, or 1.4 percent, to $793 an ounce at 10:05 a.m. on the Comex division of the New York Mercantile Exchange. A close at that price would mean a drop of 7.7 percent for the week, the biggest such decline for a most-active contract since Aug. 15. The price earlier dropped to $779 an ounce, the lowest since Sept. 17.


Silver futures for December delivery fell 27.5 cents, or 2.9 percent, to $9.36 an ounce on the Comex. The price earlier fell to $9.17, the lowest for a most-active contract since Feb. 16, 2006. The price dropped 35 percent this year before today, while gold was down 4 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.

Construction 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 of single-family homes slid 12 percent to a 544,000 annual rate last month, the slowest since February 1982.

U.S. stock indexes fell, indicating the Standard & Poor's 500 Index may trim its biggest weekly gain since 2003, as evidence increased that the economy is falling into a recession.

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