Gold Falls in London as Stronger Dollar Reduces Bullion Demand

By Nicholas Larkin

Dec. 3 (Bloomberg) -- Gold declined in London as the dollar traded close to its highest in more than a week against the euro, reducing the metal’s appeal as an alternative investment.

The euro slipped against the U.S. currency as a report showed the region’s retail sales fell more than forecast, giving the European Central Bank more reason to cut interest rates tomorrow. The U.K. may cut rates as consumer confidence slid to the lowest level in at least four years. Gold has fallen 7 percent this year as the U.S. Dollar Index, which tracks the currency against six trading partners, gained 14 percent.

“As long as the dollar continues to strengthen against the euro, gold will continue to fall,” Liran Kapeluto, a senior dealer at trading-system operator Finotec Trading U.K. Ltd., said by phone from London. “We don’t see any reason to buy gold. Inflation is going down too.”

Gold for immediate delivery lost $5.95, or 0.8 percent, to $776.40 an ounce by 12:42 p.m. in London. December futures were $7, or 0.9 percent, lower at $774.30 in electronic trading on the Comex division of the New York Mercantile Exchange.

The metal fell to $773.50 in the morning “fixing” in London used by some mining companies to sell production, from $780 at the morning fixing. Gold has slumped 25 percent since reaching a record $1,032.70 in March.

Lower Rates

Economists predict ECB policy makers will cut its benchmark interest rate by a half-percentage point tomorrow. The Bank of England will probably lower its key rate by 1 percentage point, according to a Bloomberg survey. U.K. services from banks to recruiters contracted at the fastest pace in at least 12 years in November, while consumer confidence fell to the lowest since at least 2004.

“Gold could come under pressure ahead of tomorrow’s interest rate decision,” Walter de Wet, an analyst at Standard Bank Ltd. in Johannesburg, wrote today in a note. “A worse-than- expected retail sales figure today and a possible 100 basis points cut by the ECB could see the euro under pressure against the dollar. This could drag gold down and it may also depress both platinum and palladium.”

European retail sales declined 2.1 percent in October from a year earlier, the biggest drop since June. Europe’s economy slipped into its first recession in 15 years in the third quarter after the global financial crisis pushed up borrowing costs, eroded confidence and hurt demand for exports.

The dollar increased 0.5 percent against the euro and climbed 1 percent against the pound. Crude oil, little changed at $47.04 a barrel in New York today, has plunged 51 percent this year. Falling oil prices typically reduce demand for gold as a hedge against inflation.

Job Cuts

U.S. service industries probably contracted in November at the fastest pace on record, a report may show at 10 a.m. New York time, according to a Bloomberg survey of economists. ADP Employer Services may report at 8:15 a.m. New York time that companies cut an estimated 205,000 jobs in November, the most since the 2001 recession, according to a Bloomberg Survey.

Platinum gained a second day, rising $9, or 1.1 percent, to $815 an ounce. The metal, used in autocatalysts, has slipped 47 percent this year.

General Motors Corp. and Chrysler LLC told Congress they need $15 billion just to survive until next month, when President-elect Barack Obama takes office. Democrats pledged to keep them out of bankruptcy without saying how.

U.S. November sales declined 41 percent at General Motors and 31 percent at Ford Motor Co. Toyota Motor Corp. and Honda Motor Co. posted drops of 34 percent and 32 percent respectively. European and Japan vehicle sales also slumped, while growth of cars sales in China slowed.

‘Expect The Worst’

“The platinum group metals market has come to expect the worse, and much of this bearish news has been priced in already,” de Wet said.

Among other metals for immediate delivery in London, silver fell 1.3 percent to $9.4513 an ounce, and palladium was $1, or 0.6 percent, lower at $172.

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