Gold Declines From 10-Week High as Oil Tumbles to Four-Year Low

By Feiwen Rong

Dec. 18 (Bloomberg) -- Gold fell from a 10-week high, ending an eight-day rally, as crude oil’s slump to the lowest in more than four years reduced the appeal of bullion as a hedge against inflation.

Oil fell as low as $39.19 a barrel, extending yesterday’s 8.1 percent decline, on rising U.S. stockpiles and skepticism the Organization of Petroleum Exporting Countries will achieve a 2.46 million barrel-a-day production cut agreed in Algeria. Gold gained 15 percent the previous eight days, as oil fell 1.8 percent and the dollar fell 9.4 percent over the same time.

“Oil’s fall below $40 a barrel led to a bit of a correction in the gold prices,” Ronald Leung, director, Lee Cheong Gold Dealers (Hong Kong) Ltd., said by phone from Hong Kong today. “Gold has been ignoring crude oil’s weakness and has rallied too much, too fast.”

Bullion for immediate delivery fell as low as $861.85 an ounce and was at $862.50 at 9:50 a.m. in Hong Kong. It reached $882.09 yesterday, the highest since Oct. 10, as the Federal Reserve’s near-zero interest rate policy led the dollar’s tumble against the euro and yen and boosted the appeal of the precious metal as an alternative asset.

Silver for immediate delivery fell 0.5 percent to $11.34 an ounce and platinum was little changed at $864.50 an ounce.

Gold’s gain yesterday, in the face of declining oil prices, showed the boost it received from the Fed’s “aggressive” rate cut, Darren Heathcote, head of trading at Investec Bank Ltd. in Sydney, said in a report today.

Gold has jumped 17.2 percent in the past month while the dollar has dropped 12.5 percent to a three-month low of $1.4456 against the euro and a 13-year low versus the yen today. The ICE Futures Exchange’s dollar Index, which tracks the dollar against six major currencies, fell 0.5 percent, its seventh straight decline.

February-delivery gold fell 0.4 percent to $864.80 an ounce in after-hours electronic trading on the Comex division of the New York Mercantile Exchange.

Gold for October delivery in Tokyo was little changed at 2,438 yen a gram ($865 an ounce) at the 11 a.m. local time break.

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