Gold Falls, Ending 2-Day Advance, as Dollar’s Gain Saps Demand

By Kim Kyoungwha

Sept. 14 (Bloomberg) -- Gold declined as gains by the dollar and falling oil prices sapped demand for the precious metal as an alternative investment.

Bullion, which typically moves inversely to the dollar, snapped a two-day advance as crude oil dropped to a one- week low and Asian stocks fell. The Dollar Index, a six- currency gauge of the U.S. currency’s value, rose 0.4 percent after six days of declines.

“Gold is in a modest consolidation stage as the dollar rebounded,” said Hwang Il Doo, a senior trader with KEB Futures Co. in Seoul. “The upward momentum over the longer term remains intact as more people are looking for shelter from a potentially inflationary environment.”

Gold for immediate delivery fell 0.4 percent to $1,002.92 an ounce at 1:24 p.m. in Singapore. The metal reached $1,011.95 on Sept. 11, an 18-month high, and has gained 13 percent this year. The dollar index is down 5.4 percent this year.

The MSCI Asia Pacific Index of regional shares lost 1.6 percent, ending two days of gains, as commodity prices fell and a stronger yen hurt Japanese exporters. Oil dropped as much as 1.8 percent on speculation crude’s rally to more than $72 a barrel last week outpaced the recovery in the global economy.

Outlook Cautious

UBS AG recommended investors sell gold and silver, citing a jump in speculative buying of the precious metals. Net speculative long positions in bullion were at a record 29.02 million ounces on the Comex division of the New York Mercantile Exchange as of Sept. 8, UBS said in a Sept. 12 report. That was 2.2 million more than the previous record in February, while net long positions in silver rose to 304 million ounces, the largest since July 2008, the report said.

“Considering the speed of the increase and on the absolute level of the net speculative position, we are cautious about the near-term outlook for the gold price,” John Reade, a UBS analyst, wrote in a note. “We recommend that nimble investors take profits on any long gold and silver positions, looking to re-enter after a correction.”

UBS said it held its one-month forecast for gold at $950 an ounce and expected the metal to trade higher in 2010.

Gold holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, were unchanged at 1,077.63 metric tons as of Sept. 11, according to the company’s Web site.

Among other precious metals for immediate delivery, silver fell 1.6 percent to $16.475 an ounce and platinum slumped 1.3 percent to $1,301.25 an ounce. Palladium fell 0.3 percent to $291.25.

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