Gold Drops a Second Day as Equities Rebound, Deflation Persists

By Glenys Sim

March 10 (Bloomberg) -- Gold declined for a second day in Asia as demand for the metal as a haven asset waned amid a rebound in equities.

Bullion also weakened as China’s consumer prices fell for the first time since 2002 and producer prices dropped the most in a decade, raising the risk that deflation will become entrenched. Asian shares rose for a first day in three as gains in bank stocks offset declines in automakers and consumer- electronics companies.

“Gold as an inflation hedge is not working right now because of the deflationary pressures,” Paul Schulte, head of multi-strategy research at Nomura International, said in a Bloomberg Television interview today. “As people de-leverage, they’re forced to sell assets to repay debt. That deflation counts against gold.”

Gold for immediate delivery fell as much as $9.01, or 1 percent, to $912.97 an ounce, extending yesterday’s 1.9 percent decline. The metal, which gained a total 3.6 percent between March 5 and March 6, traded at $916.45 at 2:12 p.m. in Singapore.

Assets in the SPDR Gold Trust, the biggest such fund backed by bullion, were unchanged yesterday after falling for the first time in two months on March 6.

Still, gold may climb as inflationary pressures build following trillions of dollars worth of stimulus packages announced by governments around the world, according to Nomura’s Schulte.

“People have been investing in gold as a safe haven, as an alternative to stocks,” Christopher Wyke, product manager at London-based Schroders, said in a Bloomberg Television interview today. “What’s really impressive is the gold price is up about 25 percent in the last four months at a time when the dollar’s been strong and no one’s worried about inflation.”

Among other precious metals for immediate delivery, silver fell 1 percent to $12.87 an ounce, platinum was down 0.5 percent at $1,056 an ounce, and palladium was 0.8 percent lower at $196 an ounce as of 2:03 p.m. in Singapore.

-- With reporting by Bernard Lo and Haslinda Amin. Editors: Richard Dobson, Tan Hwee Ann

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