Gold May Decline in London as Rebounding Dollar Erodes Demand

By Nicholas Larkin

Aug. 24 (Bloomberg) -- Gold, little changed in London today, may decline as a stronger dollar erodes the metal’s appeal as an alternative investment. Palladium rose to the highest price in almost a year.

The U.S. Dollar Index, a six-currency gauge of the greenback’s value, rebounded from a two-week low, gaining as much as 0.4 percent. Gold, which typically moves inversely to the dollar, added 1.4 percent on Aug. 21, the most this month.

“The market is likely to retreat toward $925 to $930 an ounce, provided the dollar rebounds from current lows,” Andrey Kryuchenkov, a VTB Capital analyst in London, wrote in a note.

Immediate-delivery bullion slipped 65 cents, or 0.1 percent, to $953.20 an ounce at 11:21 a.m. local time after advancing 0.6 percent last week. December gold futures were unchanged at $954.70 an ounce on the New York Mercantile Exchange’s Comex division.

The metal rose to $953.75 an ounce in the morning “fixing” in London, used by some mining companies to sell production, from $952.50 at the afternoon fixing on Aug. 21.

Hedge-fund managers and other large speculators reduced their net-long position in New York gold futures by 7 percent in the week ended Aug. 18, according to U.S. Commodity Futures Trading Commission data. Speculative long positions, or bets that prices will rise, outnumbered short positions by 177,530 contracts on Comex.

$930 to $960

“Longer term, changes will continue to depend particularly on the dollar,” Wolfgang Wrzesniok-Rossbach, head of marketing and sales at Hanau, Germany-based Heraeus Metallhandels GmbH, said in a report dated Aug. 20. Bullion will trade between $930 an ounce and $960 an ounce “in coming days,” he said.

Gold may be little changed this week, according to 11 of 29 traders, investors and analysts, or 38 percent, surveyed by Bloomberg. Ten forecast higher prices and eight said they would decline.

Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by the metal, added 0.92 metric ton to 1,066.41 tons on Aug. 21, data on the company’s Web site show. That’s the first increase since July 16. The fund reached a record 1,134.03 tons on June 1.

The MSCI World Index of shares today gained for a fifth day, while crude-oil futures traded near a 10-month high. The global economy is pulling out of recession, Federal Reserve Chairman Ben S. Bernanke and European Central Bank President Jean-Claude Trichet said last week at the annual central bankers’ symposium in Jackson Hole, Wyoming.

Silver, Palladium

“Hopes for an improvement in the global economy and fears regarding the emergence of inflation are leading to higher commodity prices,” GoldCore Ltd., a brokerage in Dublin, said in a note today.

An economic rebound may buoy prices of silver and platinum- group metals, which have more industrial uses than gold. Silver for immediate delivery in London rose 1.4 percent to $14.38 an ounce. Platinum was 0.8 percent lower at $1,245.75 an ounce. Palladium rose as much as 1.7 percent to $285.75 an ounce, the highest since Sept. 5, and last traded at $282.

Silver held in ETF Securities Ltd.’s exchange-traded commodities fell 0.8 percent to 19.876 million ounces on Aug. 21, according to the company’s Web site.

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