Gold Heads for First Loss in Three Weeks on Scrap, Equities

By Claire Leow

Feb. 27 (Bloomberg) -- Gold dropped for a fifth day, heading for its first decline in three weeks, on concern scrap supplies were increasing while its safe harbor status was being eroded by rising Asian equities.

“We would not be surprised to see gold under further pressure in coming days,” said UBS AG. Parts of the gold market are “in a decidedly weak position -- notably the complete absence of jewelry demand and reports of refineries full and busy converting scrap,” it said in a report.

Gold for immediate delivery declined as much as 0.9 percent to $937.34 an ounce, and traded at $941.09 at 11:04 a.m. in Singapore. That’s 6.5 percent below the 11-month high of $1,006.29 reached a week ago.

“With equity markets looking less dreadful and with leveraged investors on Comex pretty long gold,” bullion “is vulnerable to profit taking,” UBS said. Investors that borrowed to bet on gains in gold will face increasing margin calls as bullion drops, possibly forcing some to sell.

The MSCI Asia Pacific Index advanced as much as 0.9 percent to 75.24, lifting it off a five-and-a-half year low this week. Gold climbed 7 percent this year as the index plunged 16 percent.

Gold for April delivery was little changed at $941.90 an ounce on the Comex division of the New York Mercantile Exchange at 11:28 a.m. Singapore time, after a 2.4 percent drop yesterday. Investment buying of the metal has slowed, UBS said.

Exchange Fund

Gold holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, advanced for the first time in five days, reaching a record 1,029.29 tons yesterday. The amount in the trust had stayed unchanged at 1,028.98 tons since Feb. 19.

Silver fell for a fifth day, losing 0.4 percent to $13.0850 an ounce at 11:19 a.m. Singapore time. The metal remains the best performer on the UBS Bloomberg Constant Maturity Index of 26 contracts, up 20 percent this year.

Platinum dropped 0.8 percent to $1,045 an ounce at 10:32 a.m. Singapore time, heading for its first weekly decline in six as it tracks gold lower. The metal is used more in catalytic converters for cars than in jewelry or for investment. Palladium was little changed at $196.75 an ounce.

To contact the reporter for this story: Claire Leow in Singapore at cleow@bloomberg.net