Gold Drops for 4th Day in London as Stronger Dollar Cuts Demand

By Nicholas Larkin

Jan. 6 (Bloomberg) -- Gold dropped for a fourth day in London as the dollar rose to a three-week high against the euro, reducing the metal’s appeal as an alternative investment.

The euro weakened as Europe’s inflation rate fell to the lowest in more than two years in December, giving the European Central Bank more room to lower interest rates. The dollar gained for a fifth day against a basket of currencies after U.S. President-elect Barack Obama said he favors a stimulus package of about $775 billion. Gold typically moves in the opposite direction to the U.S. currency.

“The metal has been under pressure again this morning on the back of further dollar strength,” James Moore, an analyst at TheBullionDesk.com in London, wrote in a report. “Given the likely short-term strength of the greenback, gold is likely to remain on the defensive.”

Gold for immediate delivery fell $17.10, or 2 percent, to $842.40 an ounce by 12:37 p.m. in London. February futures dropped $15, or 1.8 percent, to $842.80 in electronic trading on the Comex division of the New York Mercantile Exchange.

The metal declined to $844 in the morning “fixing” in London, used by some mining companies to sell production, from $853.50 at the afternoon fixing yesterday. Bullion is down 4.5 percent in London this year after a 5.8 percent increase in 2008, a record eighth annual advance.

“Limited physical related buying exists on dips as demand continues to decline as prices spike towards $900 an ounce,” said Emanuel Georgouras, a precious metals trader at Marex Financial Ltd. in London.

Gold Sales

Bullion sales in Dubai fell 15 percent last month from a year earlier as higher prices and the slowing economy deterred buyers, said Tawhid Abdullah, managing director of the Dubai Gold and Jewellery Group. Prices may fluctuate between $750 and $850 an ounce this year, he said.

Gold sales by funds tracking commodity indexes may reach $877 million this month, reflecting annual reweightings in benchmarks, JPMorgan Securities Ltd. said in a Jan. 2 report. The holding reductions “mandates sizeable liquidation in gold that may last a day or two more,” U.S. economist Dennis Gartman wrote in his daily Gartman Letter today.

Gold’s losses may be limited after oil rose as much as 3.4 percent to $50.47 a barrel in New York as Kuwait and Qatar indicated they will implement supply cuts announced by OPEC last month. Some investors buy gold as a hedge against inflation.

“Crude oil prices have been steadily creeping back into precious metal investors’ radar,” Manqoba Madinane, a commodity analyst at Standard Bank Group Ltd. in Johannesburg, wrote in a report.

Auto Slump

Amongst other metals for immediate delivery in London, silver slipped 3.3 percent to $10.89 an ounce. Platinum declined $6, or 0.6 percent, to $943 an ounce and palladium was 3 percent higher at $190 an ounce.

Auto sales in the U.S., the world’s biggest market for cars and light trucks, plunged 36 percent in December, dragging the industry’s annual volume to a 16-year low as the recession ravaged demand. Vehicle sales in China, Europe and Japan have also slumped.

Automakers account for about half of global platinum and palladium consumption, according to estimates by Johnson Matthey Plc, a London-based metals refiner, trader and researcher. The figures take recycling into account.

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