Gold Rebounds From Biggest Decline in 3 Months as Dollar Falls

By Kim Kyoungwha

Oct. 27 (Bloomberg) -- Gold advanced, rebounding from its biggest drop in three months, as the dollar fell against major global currencies, reviving demand for the precious metal as an alternative asset.

The U.S. currency weakened for the first time in three days against a basket of six major currencies including the yen on concern U.S. bank losses will derail the global economic recovery. Gold, which typically moves inversely to the dollar, dropped 1.6 percent yesterday, the most since July 28.

“The dollar’s movements are still crucial to the course of gold,” said Hwang Il Doo, a senior trader with KEB Futures Co. in Seoul. “Over the longer term, the uptrend is still valid although there are increased signals that the market needs consolidation before another rally to records.”

Immediate-delivery gold rose 0.4 percent to $1,042.50 at 2:08 p.m. in Singapore, after earlier touching $1,037.03, the lowest since Oct. 7. Bullion touched a record $1,070.80 on Oct. 14 and has risen 18 percent this year. Gold futures for December delivery was little changed at $1,042.80 on the Comex division of the New York Mercantile Exchange.

Still, some analysts warned that rising short positions, or bets that prices will decline, signaled at a reversal of the bullish trend in the past few weeks.

“We have been observing that the number of short positions rose for the third week in a row, signaling that an increasing proportion of market players view the current gold price level as unsustainable,” Eugen Weinberg, analyst with Commerzbank AG., wrote in a note yesterday. “Should this sentiment spread further among market participants, the gold price could come under considerable pressure.”

Jon Nadler, senior analyst with Kitco Metals Inc., also wrote in a report that the absolute level of speculative long positions remains worrisome and continues posing a very real “opening of the floodgates type of liquidation” risk should prices extend a drop, a scenario that is “ultimately unavoidable.”

Among other precious metals, silver increased 0.8 percent to $17.20 an ounce, platinum added 0.2 percent to $1,335.25 an ounce and palladium was up 0.2 percent to $335.25 an ounce.

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