Gold Posts Biggest Monthly Drop in 28 Years as Dollar Climbs

By Pham-Duy Nguyen

Oct. 31 (Bloomberg) -- Gold futures fell, posting the biggest monthly decline in 28 years, as the dollar climbed, reducing the appeal of the precious metal as an alternative investment. Silver also fell.

The dollar rebounded against a weighted basket of six major currencies after dropping 2.8 percent in the previous two days. Equities worldwide were poised for the biggest monthly decline ever. Gold has dropped 14 percent this year, while the dollar index gained 13 percent.

``Global liquidation means more money from foreign assets are going into the dollar,'' said Adrian Day, the president of Adrian Day's Asset Management in Annapolis, Maryland. ``The dollar is seen as a safe haven. There's also liquidation of gold itself, which is easily sold.''

Gold futures for December delivery fell $20.30, or 2.7 percent, to $718.20 an ounce on the Comex division of the New York Mercantile Exchange. This month, the price dropped 18 percent, the most since March 1980.

Silver futures for December delivery fell 5.5 cents, or 0.6 percent, to $9.73 an ounce. The metal declined 21 percent this month and is down 35 percent this year.

The euro traded as low as $1.2668 today. It reached a record $1.6038 on July 15.

Gold may fall to $620 should the dollar strengthen to $1.20 against the euro, said Joel Crane, a metals strategist at Deutsche Bank AG in New York. ``Cash is just more predictable than gold now,'' he said.

`Central-Bank Intervention'

Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, was unchanged for a fourth day at 749.2 metric tons. It reached a record 770.6 on Oct. 10.

``The dollar is in a short squeeze that won't last much longer,'' said James Turk, the founder of Goldmoney.com, which held $405 million of gold and silver in storage for investors at the end of September. ``Gold is dropping in dollar terms because of central-bank intervention and the massive deleveraging of dollar debt.''

Since the second quarter of 2007, banks worldwide have posted $684.5 billion in writedowns and losses related to investments in subprime mortgages.

Commodities were headed for the biggest monthly decline since at least 1956 as the global economic slump slows demand for energy, industrial metals and crops.

``There's significant pressure on all metals and commodities,'' said Paul Sutherland, the chief investment officer at Financial & Investment Group in Traverse City, Michigan. ``Gold is not acting like a currency. It's acting like a commodity. People are selling gold and gold shares because it's something you can sell to raise cash.''

To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.