Gold Drops in Asia as Falling Crude Oil, Cost of Living Weighs

By Glenys Sim

Jan. 19 (Bloomberg) -- Gold declined in Asia as crude oil weakened and the cost of living in the U.S. fell, dimming the appeal of the metal as an inflation hedge. Platinum gained.

The U.S. consumer price index fell 0.7 percent in December, capping the smallest annual increase since 1954, the Labor Department said Jan. 16, as a record slide in retail sales destroyed companies' pricing power.

``All the talk is on deflation at the moment, which is negative for gold,'' Lin Yuhui, research manager at China International Futures Co., said from Shenzhen. ``Perhaps in the later part of the year, when inflation starts to pick up again, gold will once again find favor with investors.''

Bullion for immediate delivery fell as much as 0.6 percent to $838.29 an ounce, and traded at that level at 9:41 a.m. in Singapore. Gold for February delivery was little changed at $838.10 in after-hours electronic trading on the Comex division of the New York Mercantile Exchange.

Crude oil slid on speculation recession in the world's largest developed economies would cut demand for fuel and energy this year. Global oil demand will shrink 0.6 percent to 85.3 million barrels a day this year, the first two-year decline since 1983, the International Energy Agency said Jan. 16.

Dollar Weakens

Helping limit gold's losses was a weaker dollar. The Dollar Index on ICE futures, which tracks the greenback versus six major U.S. trading partners, slid for a second day as measures to stabilize banks cut demand for the currencies as havens. Gold dropped 1.3 percent last week as the index climbed 1.9 percent.

Bullion may rebound this week on speculation that the dollar will slide, boosting the appeal of the precious metal as an alternative investment.

Eighteen of 32 traders, investors and analysts surveyed from Mumbai to Chicago advised buying gold. Ten said to sell, and four were neutral.

Among other precious metals for immediate delivery, silver was down 0.7 percent at $11.19 an ounce, platinum added 1 percent to $958.50 an ounce, and palladium was little changed at $186 an ounce as of 9:50 a.m. in Singapore.

To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net