Gold Declines in London as Crude Oil Drops, Dollar Rebounds

By Nicholas Larkin

Nov. 12 (Bloomberg) -- Gold fell in London, erasing earlier gains, as crude oil dropped and the dollar rebounded against major currencies, reducing bullion's appeal as an alternative investment and hedge against inflation.

Oil slipped to a 20-month low on forecasts that U.S. crude inventories grew for a seventh week as the worsening economy erodes energy demand. The dollar rebounded against a basket of six currencies, heading for a fifth daily gain. Bullion typically moves in the opposite direction to the U.S. currency.

``The sentiment is still pretty negative,'' Narayan Gopalakrishnan, a Geneva-based trader at MKS Finance, one of Switzerland's four bullion refiners, said by phone today. ``With dollar firmness and oil not helping,'' gold may head toward $680 an ounce in the near future, he said.

Gold for immediate delivery lost $3.45, or 0.5 percent, to $728.25 an ounce by 1:19 p.m. in London. It gained as much as 1 percent earlier. December futures declined $6.90 to $725.90 an ounce in electronic trading on the Comex division of the New York Mercantile Exchange.

The metal fell to $731.50 in the morning ``fixing'' in London used by some mining companies to sell production, from $733.75 at the previous afternoon fixing.

Oil for December delivery fell as much as much as 2.8 percent to $57.70 a barrel and last traded at $58.66 on the New York Mercantile Exchange. The ICE futures exchange's U.S. Dollar Index added 0.3 percent after earlier slipping 0.5 percent.

Hampered by Dollar

Bullion has lost 29 percent since reaching a record $1,032.70 an ounce in March as investors liquidated their commodity holdings to raise cash amid the global credit crisis.

``Gold and silver should continue to be supported by strong physical offtake, although the strength of the U.S. dollar is hampering attempts by the metals to trade up,'' John Reade, an analyst at UBS AG in London, wrote in a note today.

Among other metals for immediate delivery, silver lost 1.6 percent to $9.59 an ounce. Platinum added $6, or 0.7 percent, to $828.50, and palladium was unchanged at $218.25 an ounce.

To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net