Gold Falls in London as Lower Oil, Stronger Dollar Cut Demand

By Nicholas Larkin

July 13 (Bloomberg) -- Gold fell in London as lower oil prices and a stronger dollar reduced the metal’s appeal as a hedge against rising consumer prices and as an alternative investment. Other precious metals dropped.

Crude oil, used by some investors as an indicator of the outlook for inflation, declined for a second day after last week dropping the most since January. The U.S. Dollar Index, a six- currency measure of the greenback’s value, today added as much as 0.3 percent. Gold tends to move inversely to the currency.

The dollar’s “rise and weak oil prices have heightened concerns about an economic recovery and eroded bullion’s appeal as an inflation hedge,” Pradeep Unni, a Richcomm Global Services analyst in Dubai, wrote today in a report.

Bullion for immediate delivery fell $3.35, or 0.4 percent, to $909.70 an ounce by 10:49 a.m. in London. The metal slid 2.1 percent last week, the biggest drop in five weeks. August gold futures lost 0.4 percent to $909.30 an ounce on the New York Mercantile Exchange’s Comex division.

Spot prices have fallen in five of the past six weeks. Twenty-one of 32 traders, investors and analysts surveyed by Bloomberg News, or 66 percent, said bullion would decline this week as the dollar strengthens. Five people forecast higher prices and six were neutral.

Coin Demand

Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, was unchanged at 1,109.81 metric tons on July 10, the company’s Web site showed. Gold held in ETF Securities Ltd.’s exchange-traded commodities fell 0.6 percent to 7.598 million ounces on that date, its Web site showed.

There is “little interest from the jewelry industry, modest coin and investment-bar demand, and we have seen no substantial inflows into ETFs,” John Reade, UBS AG’s head metals strategist in London, said today in a note. “A test of $900 an ounce in gold is on the cards in the near future.”

Silver for immediate delivery in London fell for a sixth day, losing as much as 1.7 percent to $12.4738 an ounce, the lowest since May 4. It last traded at $12.525, the longest streak of declines since March. Platinum dropped 1.6 percent to $1,093.25 an ounce, and palladium declined 1 percent to $233 an ounce.

To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net