Gold Declines for Second Day as Dollar’s Advance Curbs Demand

By Kim Kyoungwha

Jan. 8 (Bloomberg) -- Gold fell for a second day as the dollar’s strength sapped demand for the precious metal as an alternative asset.

The greenback rose against a six-currency basket before an employment report today that economists said will show two years of job losses halted, a signal that the world’s largest economy is recovering from recession. Gold rose 24 percent in 2009 as the Federal Reserve kept interest rates near zero percent to spur growth. The dollar gained as much as 0.8 percent against a six-currency basket yesterday.

“People are a bit disappointed that gold couldn’t hold on to gains and some of them are willing to sell,” said K.C. Wong, a trader with Standard Merchant Bank Ltd. in Singapore. The market is on watch for “a further clue” on the course of the dollar as it awaits the release of U.S. employment data today, he said.

Gold for immediate delivery weakened 0.7 percent to $1,123.47 an ounce at 2:48 p.m. in Singapore. February-delivery futures fell 0.9 percent to $1,123.80 an ounce.

Bullion holdings in the SPDR Gold Trust, the biggest exchange-traded fund backed by the metal, dropped 0.4 percent to 1,123.50 metric tons yesterday. The Dollar Index rose as much as 0.2 percent to 78.091 today.

Still, gold is up 2.1 percent this week after five weeks of declines, the longest losing streak since August 2008, amid speculation that large investors will resume adding gold to their investment as an asset class as the new year began.

Inflation Hedge

“We believe gold and other precious metals will remain a substantial allocation for hedge funds as a hedge against longer-term inflation,” Hennessee Group LLC, a consultant and adviser to direct investors in hedge funds, wrote in a report yesterday.

Gold will average $1,290 an ounce this year as spending by governments spurs inflation, stoking demand for the metal as a hedge against eroding values of other assets, according to broker GoldCore Ltd.

Prices will climb from an average $1,290 an ounce in the current quarter to $1,390 in the year’s final three months, Executive Director Mark O’Byrne said in an e-mail yesterday. The metal for immediate delivery climbed to a record $1,226.56 in December as a drop in the dollar spurred demand for the metal.

Fourteen of 20 traders, investors and analysts surveyed by Bloomberg News, or 70 percent, said bullion would gain next week. Six forecast lower prices.

Among other precious metals, silver decreased 0.9 percent to $18.075 an ounce, platinum fell 0.8 percent to $1,543 an ounce and palladium was down 0.2 percent to $425.50 an ounce.

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