Gold Declines as China’s ‘Bear Market’ Boosts Demand for Dollar

By Kim Kyoungwha

Aug. 19 (Bloomberg) -- Gold fell, erasing an earlier advance, as Chinese stocks entered a so-called bear market, boosting the attractiveness of the dollar.

The Dollar Index, a gauge of the U.S. currency, rose as the Shanghai Composite Index fell on concern the nation’s economic recovery will falter as the government reins in lending. The MSCI Asia Pacific Index of regional shares also declined.

“People are wary of unease in China and other regional stock markets, which is reviving demand for the dollar,” said Hwang Il Doo, a senior trader with KEB Futures Co. in Seoul. “Still, I don’t expect any abrupt decline in gold prices.”

Gold for immediate delivery, which tends to move inversely to the dollar, fell as much as 0.4 percent to $934.90 an ounce, before trading at $935.63 at 2:52 p.m. in Singapore. Earlier, the metal gained as much as 0.4 percent as the dollar slipped.

The Shanghai Composite Index declined 4.7 percent to 2,774.77 as of 2:44 p.m. local time today, increasing its loss since the 14-month high on Aug. 4 to 20.2 percent. A drop of 20 percent is typically defined as a bear market.

Earlier, the precious metal rose after Pacific Investment Management Co., which runs the world’s biggest bond fund, said that the dollar will probably drop as it loses its status as a reserve currency.

Pacific Investment Management, a unit of Munich-based insurer Allianz SE known as Pimco, said that investors should consider cutting holdings of the U.S. currency, according to a report from Curtis A. Mewbourne, a Pimco portfolio manager.

“While we have not yet reached the point where a new global reserve currency will arise, we are clearly seeing a loss of status for the U.S. dollar,” Mewbourne wrote.

Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, were unchanged at 1,065.49 metric tons as of Aug. 18, according to the company’s Web site.

Among other precious metals for immediate delivery, silver fell 0.9 percent to $13.88 an ounce, platinum shed 1 percent to $1,219.50 an ounce and palladium lost 1.5 percent to $269.75.

To contact the reporter on this story: Kyoungwha Kim in Singapore at Kkim19@bloomberg.net