Gold Declines in London as Equities Rise, May Test $1,000 Again

By Anna Stablum

Feb. 23 (Bloomberg) -- Gold fell in London as equities rose and investors locked in gains after the metal climbed above $1,000 an ounce last week for the first time in almost a year.

Stocks in Asia and Europe rallied, pushing the MSCI World Index higher for the first time in 10 days, on speculation the U.S. government will increase its control over Citigroup Inc. Gold has gained 45 percent since Oct. 24 as confidence in the financial system has eroded. The MSCI stock index has fallen 11 percent in the period.

“Gold is consolidating because of stronger equity markets, but another race above $1,000 and a test of the record high from last March is still very likely,” Carsten Fritsch, a Frankfurt- based commodity analyst at Commerzbank AG, said by telephone.

Gold for immediate delivery dropped as much as $11.36, or 1.1 percent, to $981.54 and traded at $985.92 as of 10:40 a.m. in London. Gold futures for April delivery fell $14, or 1.4 percent, to $988.20 an ounce on the New York Mercantile Exchange’s Comex division. Both contracts climbed above $1,000 an ounce Feb. 20.

The rally may continue as investors seek a haven from the turmoil in the financial system and on concern that the trillions of dollars injected into the global economy will spur inflation, Fritsch said.

“If equities turn lower again, gold will see another test of $1,000 and also of the record high from last year,” Fritsch said. Gold in London peaked last year at $1,032.70 on March 17.

U.S. financial firms have posted more than $750 billion in writedowns and credit losses since last year as the collapse of the housing market led to the worst financial crisis since the Great Depression. President Barack Obama is scheduled to release an outline of his 2010 spending plan later this week.

Inflation Concern

Near-unlimited government support for troubled banks will lead to large increases in U.S. government debt, John Reade, an analyst at UBS AG, wrote in a report yesterday. Together with the injections of money into the economy and “the inevitable decline in tax revenues due to the global recession,” investors are concerned about long-term inflation, he said.

“It is these fears that have triggered the recent surge of investment flows into gold,” Reade said. “These fears are only likely to grow in the near term.”

Investor demand has pushed gold holdings in exchange-traded funds to records.

Gold held in ETF Securities Ltd.’s Physical Gold exchange- traded fund advanced to a record 2.351 million ounces as of Feb. 20, according to figures on the company’s Web site today.

Investment demand for bullion, including coins and bars, almost tripled to 399 tons in the fourth quarter, as total demand climbed 26 percent to 1,036.5 tons, the London-based World Gold Council said Feb. 18.

Among other precious metals for immediate delivery in London, silver lost 1.0 percent to $14.295 an ounce. Platinum rose 75 cents to $1,083.25 an ounce, and palladium was 0.5 percent higher at $216 an ounce.

To contact the reporters on this story: Anna Stablum in London at astablum@bloomberg.net.