Gold May Decline a Fourth Day as Dollar Rebound Curbs Demand

By Nicholas Larkin

Sept. 28 (Bloomberg) -- Gold, little changed in London today, may decline for a fourth day as a stronger dollar curbs demand for the precious metal as an alternative investment.

The U.S. Dollar Index, a six-currency gauge of the greenback’s strength, climbed as much as 0.6 percent before a German report forecast to show consumer prices dropped for the first time in four months. Gold tends to weaken when the dollar strengthens.

“Short-term corrections for the dollar could further weigh on gold and the precious complex,” James Moore, an analyst at TheBullionDesk.com in London, said in a note. “We still expect dips to remain supported by longer-term investors looking to offset inflation/deflation concerns.”

Immediate-delivery bullion added 41 cents to $991.41 an ounce by 11:35 a.m. local time, rebounding from a drop of as much as 0.5 percent. The metal lost 1.7 percent last week, its first drop in six weeks. December gold futures rose 0.1 percent to $992.30 on the New York Mercantile Exchange’s Comex division.

The metal slipped to $990.50 an ounce in the morning “fixing” in London, used by some mining companies to sell production, from $991.50 at the afternoon fixing on Sept. 25.

The dollar index has fallen 5.4 percent this year and slid to the lowest level in a year on Sept. 23. Bullion is up 12 percent and climbed to an 18-month high of $1,024.28 an ounce on Sept. 17. It reached a record $1,032.70 in March 2008.

More Long Positions

“Gold has done quite well in the past month, so a little pullback is normal,” said Wallace Ng, chief precious-metals dealer at Fortis Bank’s commodity derivatives unit.

Hedge-fund managers and other large speculators increased their bets on rising New York futures to a record in the week ended Sept. 22, the U.S. Commodity Futures Trading Commission said last week. Net-long positions gained by 1,102 contracts to 236,749 contracts.

“Positioning in the precious-metals markets remains very extended,” John Reade, UBS AG’s head metals strategist in London, wrote in a note today. “If the dollar remains strong, and/or broader asset markets stay under pressure, then gold and silver could trade much lower in the coming weeks.”

Holdings of bullion in the SPDR Gold Trust, the biggest exchange-traded fund backed by the metal, were unchanged at 1,094.11 metric tons on Sept. 25, data on the company’s Web site showed. Gold held in ETF Securities Ltd.’s exchange-traded products added 0.2 percent to a record 8.394 million ounces on Sept. 25, its Web site showed. The company’s data exclude products listed in the U.S.

Among other precious metals for immediate delivery, silver lost 0.5 percent to $15.965 an ounce, the lowest in three weeks. Palladium was 0.5 percent lower at a three-week low of $290.50 an ounce, while platinum added 0.3 percent to $1,278.50 an ounce.

To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net; Glenys Sim in Singapore at gsim4@bloomberg.net