Gold Falls as Dollar Extends Gains, Eroding Investment Demand

By Jae Hur and Jason Scott

June 9 (Bloomberg) -- Gold declined close to its lowest in two weeks as the dollar advanced for a third day, reducing the appeal of precious metals as an alternative investment. Silver also fell.

The Dollar Index, a six-currency measure of the dollar’s value, climbed as much as 0.2 percent after jumping 2 percent in the previous two days. Gold, which often moves in the opposite direction to the currency, slid as much as 0.4 percent today after losing 2.9 percent in the previous two sessions.

“The dollar changed its direction to the plus side against the euro, putting pressure on gold,” said Kazuhiko Saito, chief analyst at Tokyo-based commodity broker Fujitomi Co..

Immediate-delivery gold fell 0.2 percent to $949.64 an ounce at 1:14 p.m. Singapore time after trading between $947.59 and $955.35. Bullion, which some investors buy to hedge against inflation, touched $943.80 yesterday, the lowest since May 26.

Gold for August delivery, the most-active contract on the Comex division of the New York Mercantile Exchange, was 0.2 percent lower at $950.30 an ounce.

The dollar gained for a third day versus the euro as traders added to bets the Federal Reserve will raise interest rates this year. The dollar gained as much as 0.3 percent $1.3853 per euro before trading at $1.3884 by 1:31 p.m. Singapore time.

Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, were unchanged at 1,132.15 tons yesterday, according to data on the company’s Web site. The holdings dropped from a record 1,134.93 tons as of June 1.

Gold was also under pressure from the drop in ETF holdings and speculation the U.S. may support the partial sales of the International Monetary Fund’s reserves, Saito said.

IMF Gold

The U.S. Congress may decide within days whether to support the partial sale of the IMF’s gold reserves, Managing Director Dominique Strauss-Kahn said on May 27.

The IMF’s board last year approved plans to sell 403.3 tons of bullion. A decision to sell gold requires the backing of 85 percent of the IMF’s board, and the board representative from the U.S. needs the approval of Congress to vote in favor of any sales, according to the IMF Web site.

Silver for immediate delivery fell 0.4 percent to $14.885 an ounce at 1:24 p.m. Singapore time after trading as high as $15.0637. The metal lost 5.9 percent in the previous two days.

Still, silver has outpaced gold this year. An ounce of gold now buys about 63.9 ounces of silver, according to data compiled by Bloomberg. That’s down from a high of 84.4 on Oct. 10, which was the most since March 1995.

Among other precious metals for immediate delivery, platinum slid 1.4 percent to $1,229 an ounce, extending yesterday’s 1.6 percent drop. Palladium fell 1.4 percent to $247 an ounce.

To contact the reporters on this story: Jae Hur in Singapore at jhur1@bloomberg.net; Jason Scott in Perth at Jscott14@bloomberg.net