Gold Drops in Asia as Demand for Hedge Against Inflation Wanes

By Feiwen Rong

Nov. 14 (Bloomberg) -- Gold fell on speculation yesterday's rally was overdone as declining commodity prices and gains in the dollar this month may reduce the precious metal's appeal as a hedge against inflation.

Gold jumped 3.4 percent yesterday after U.S. stocks rallied 6 percent in the final hour. Still, the dollar has advanced 1.2 percent against a basket of six major currencies this month, after rising for the past four, and the Reuters/Jefferies CRB Index of 19 raw materials yesterday touched a five-year low.

``There was a bit of profit-taking coming in this morning,'' Wallace Ng, precious metals trader at Fortis Bank, said by phone from Hong Kong today. ``Some investors aren't convinced the rally will be sustained because the dollar may strengthen and no one worries about inflation now.''

Bullion for immediate delivery fell 1.1 percent to $728.28 an ounce at 2:38 p.m. in Singapore. Silver for immediate delivery was down 1.7 percent at $9.28 an ounce.

The U.S. dollar index, which measures the greenback against the currencies of six trading partners, advanced to a 30-month high yesterday. Commodities were pressured by concern that a slumping global economy will damp demand for raw materials.

The German economy, Europe's largest, slid into its worst recession in at least 12 years in the third quarter as the global financial crisis curbed exports and spending, government data showed yesterday. The International Monetary Fund last week warned of the first simultaneous recession in the U.S., Japan and Europe in more than 60 years.

Retail Sales

Investors may also focus on U.S. retail sales, William Kwan, bullion director, Gold Capital Management Pte, said in a report today. Worse-than-expected sales ``could spur risk aversion again and pressure gold downwards,'' he said.

Sales at U.S. retailers dropped 2.1 percent in October, the fourth consecutive decrease and the biggest since November 2001, according to a Bloomberg News survey of economists. The Commerce Department will release the report at 8:30 a.m. in Washington.

The Reuters/University of Michigan preliminary index of consumer sentiment fell to 56.2 in November, the lowest level since 1980, from 57.6 the prior month, a separate Bloomberg survey showed. The report is due at 10 a.m. in New York.

December-delivery gold rose 3.2 percent to $727.70 an ounce in after-hours electronic trading on the Comex division of the New York Mercantile Exchange at 2:50 p.m. in Singapore.

Gold for October delivery in Tokyo gained 2.7 percent to 2,273 yen a gram ($728 an ounce) at 3:51 p.m. local time.

To contact the reporter on this story: Feiwen Rong in Singapore at frong2@bloomberg.net