Gold, Silver Fall in N.Y. as Equities Rebound, Dollar Rallies

By Halia Pavliva and Karla Palomo

Sept. 30 (Bloomberg) -- Gold fell in New York, capping its first quarterly decline in more than a year, as U.S. equities rallied and the dollar surged to a record gain against the euro, cutting investment demand for the metal. Silver also dropped.

Major U.S. equity indexes rebounded from the worst plunge since October 1987 after lawmakers sought to repair a $700 billion financial rescue plan voted down yesterday. The dollar climbed the most ever against the 15-nation European currency as France and Belgium led a state-backed rescue of Dexia SA, the world's biggest lender to local governments.

``Today's theme was: rally like there is no tomorrow,'' Jon Nadler, a senior analyst at Kitco Metals & Minerals Inc. in Montreal, said today in a note to clients. The ``Dow Jones index took the advice and made back nearly half of yesterday's historic losses. The U.S. dollar made astounding progress to the upside'' and gold was ``cratering in an implosion of selling.''

Gold futures for December delivery fell $13.60, or 1.5 percent, to $880.80 an ounce on the Comex division of the New York Mercantile Exchange. The metal posted a 5.1 percent third- quarter drop, the first such decline since June 2007.

Gold still rose 5.5 percent this month, as the credit crunch spread, and is up 17 percent in the past year. The Standard & Poor's 500 Index of equities jumped as much as 5 percent, recovering from an 8.8 percent plunge yesterday, the biggest drop since October 1987.

Silver futures for December delivery declined 75 cents, or 5.8 percent, to $12.275 an ounce. The metal fell 10 percent this month and is down 12 percent from a year ago.

Outlook

``Investors will be allocating more money to gold and silver'' in the next six to nine months, Jeffrey Christian, a managing director at CPM Group in New York, said today in a Bloomberg Television interview.

Gold and other precious metals, including silver, may rise as investors seek a haven on concerns that more financial institutions may fail, Christian said. Lawmakers in the U.S. House of Representatives rejected the bailout proposal to help financial companies and ease a spreading credit crunch. Treasury Secretary Henry Paulson met with Republican and Democratic leaders in Washington today to reshape the rescue plan, which may come up for a Senate vote tomorrow.

``Gold and silver will probably rise because they will be seen as a safe haven and as a portfolio diversifier,'' Christian said. ``Investors around the world are turning to gold and silver as a means of protecting their assets from the financial maelstrom that we are in the middle of.''

Holding Value

``Gold continues to hold its value as a protection in adverse market conditions,'' Miguel Perez-Santalla, a sales vice president at Heraeus Precious Metals Management in New York, said today in a note. ``The world is looking for the other shoe to drop.''

The precious metal may gain 5.4 percent over the next year as investors shun equities, bonds and currencies as too risky, delegates to the London Bullion Market Association conference said. Gold rose to the highest in two months after yesterday's House vote, which defied the leadership of both major parties.

``Gold will make a new high sometime in the fourth quarter of this year or early 2009, and we think it is going over $1,032 an ounce,'' Christian said. ``Silver is going to surpass the $22 an ounce that we saw in March.''

Silver, which topped $40 an ounce in the mid-1970s, ``is still far from its record high, but will be making new highs over the next nine months,'' Christian said.

Gold surged 14 percent in the past two weeks before today as worries about bank failures and government rescue plans spurred demand for a haven from market turmoil. Federal Reserve Chairman Ben S. Bernanke said last week that the economy faces ``grave threats'' and warned that the credit crisis already is hurting business spending.

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