Gold May Decline in London as Stronger Dollar Reduces Demand

By Nicholas Larkin and Glenys Sim

Sept. 29 (Bloomberg) -- Gold, little changed in London today, may decline as a strengthening dollar cuts demand for the metal as an alternative investment.

The dollar climbed to a two-week high against the euro as evidence economies have yet to shake off the worst effects of the global recession spurred demand for the safety of the greenback. Gold tends to fall when the dollar strengthens.

“The correlation between gold and the dollar has been very high in the last couple of weeks,” Wolfgang Wrzesniok-Rossbach, head of marketing and sales at Hanau, Germany-based Heraeus Metallhandels GmbH, said today by phone. “Gold will probably follow the euro-dollar move and go lower.”

Immediate-delivery bullion added $2.16, or 0.2 percent, to $993.21 an ounce by 10:04 a.m. local time. December gold futures were 30 cents higher at $994.40 an ounce on the New York Mercantile Exchange’s Comex division.

The dollar climbed as much as 0.4 percent against the euro as Russia’s central bank cut its main interest rate. The U.S. currency has lost 4.2 percent against the euro this year as bullion has advanced 13 percent.

Gold may be supported as investors seek a haven from geopolitical tension in the Middle East, according to HSBC Securities analyst James Steel. Iran yesterday test-fired its Shahab-3 missile amid a threat that international talks this week on its nuclear program will lead to further sanctions. The missile can reach Israel.

Silver, Platinum

Holdings of bullion in the SPDR Gold Trust, the biggest exchange-traded fund backed by the metal, were unchanged for a second day at 1,094.11 metric tons yesterday, data on the company’s Web site showed.

Among other precious metals for immediate delivery, silver was little changed at $16.17 an ounce. Palladium was 0.7 percent higher at $290.50 an ounce, while platinum lost 0.2 percent to $1,277 an ounce.

Impala Platinum Holdings Ltd., the producer of more than a quarter of the world’s supply of the metal, said an accident and a strike at its Impala Lease Area mine will cut planned output by 100,000 ounces. The mine previously had a production target of 950,000 ounces in the financial year through June 2010. The lost output equals about 1.7 percent of BNP Paribas SA’s 5.8 million-ounce estimate of this year’s global production.

Platinum held in ETF Securities Ltd.’s exchange-traded products added 0.7 percent to 363,505 ounces yesterday, its Web site showed. The company’s gold, silver and palladium holdings were unchanged.

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