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 today by phone from Hong Kong. “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 $867.05 at 4:24 p.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 0.4 percent to $11.35 an ounce. Silver “tested the technically important mark of $11.50 yesterday,” said analysts at Credit Suisse in a report today. “If prices can break this level on a sustained basis, we should see more upside potential for silver in the short-term.”

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 $1.4494 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 0.1 percent, its seventh straight decline.

Platinum Rises

Platinum was up 0.7 percent at $871.75 an ounce at 4:24 p.m. in Hong Kong, as “newly announced production and capital expenditure cuts in the platinum market should improve the supply and demand balance over the medium to longer-term,” said the analysts at Credit Suisse.

Still, “platinum price volatility remained elevated following poor Eurozone vehicle demand data - keeping most investors skeptical despite continued dollar weakness,” said Manqoba Madinane, a commodity analyst at Standard Bank Group Ltd. in Johannesburg, in a report today.

February-delivery gold fell 0.1 percent to $867.70 an ounce in after-hours electronic trading on the Comex division of the New York Mercantile Exchange.

Gold for October delivery in Tokyo was up 0.7 percent at 2,452 yen a gram ($867 an ounce) at 4:25 p.m. local time.

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