Gold Declines as Demand Falters After Rally to Six-Month High

By Glenys Sim

Feb. 16 (Bloomberg) -- Gold dropped a second day in Asia as investor demand diminished after the metal’s rally last week to more than $950 an ounce, the highest in six-months.

Bullion climbed to $952.92 an ounce on Feb. 12, the highest since July 22, as the global financial crisis prompted investors to seek gold as a store of value and demand rose for haven assets.

“I wouldn’t be surprised if we see a little bit of a correction but that would be a good buying opportunity because I think it will be over a $1,000 an ounce within a few months’ time,” said Philip Klapwijk, chairman of London-based consultant GFMS Ltd.

Gold for immediate delivery fell as much as 0.6 percent to $936.33 an ounce, before trading at $937.95 at 9:47 a.m. in Singapore. Gold for April delivery was down 0.4 percent at $938.70 in after-hours electronic trading on the Comex division of the New York Mercantile Exchange. The U.S. market is closed today for a holiday.

Still, gold may gain for a second straight week as the banking crisis and recession deepen, boosting the metal’s appeal as a store of value. Twenty-six of 32 traders, investors and analysts surveyed from Tokyo to Chicago last week advised buying gold. The futures rose 3.1 percent last week.

Hedge-fund managers and other large speculators increased their net-long position by 5 percent in New York gold futures in the week ended Feb. 10, according to U.S. Commodity Futures Trading Commission data. Speculative long positions, or bets prices will rise, outnumbered short positions by 163,622 contracts on the Comex division of the New York Mercantile Exchange.

Inflation Outlook

December-delivery gold in Tokyo was little changed at 2,771 yen a gram ($940 an ounce), while Shanghai gold for June delivery slid 0.3 percent to 205.19 yuan a gram ($934 an ounce) at the same time.

Economic stimulus plans by governments around the world were likely to drive inflation, increasing demand for gold as a hedge, according to John March, technical analyst at Superior Gold Group.

“With all the money we’re spending, I don’t have any doubt that we have inflation in our future, and if they keep stimulating until they see inflation, by the time that stimulus gets all the way through, we could see even hyper inflation,” March said in a Bloomberg Television interview.

Among other precious metals for immediate delivery, silver fell 0.8 percent to $13.585 an ounce, platinum dropped 0.5 percent to $1,059.50 an ounce, and palladium declined 1.4 percent to $213.50 an ounce as of 9:50 a.m. in Singapore.

-- With reporting by Pham-Duy Nguyen in New York. Editors: Wendy Pugh, Richard Dobson

To contact the reporter on this story: Glenys Sim in Singapore at Gsim4@bloomberg.net