Gold Drops by Most in a Week in Asia as Rally Encourages Sales

By Glenys Sim

Jan. 7 (Bloomberg) -- Gold fell by the most in a week after its climb to a three-week high yesterday prompted some investors to sell the metal.

Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by the metal, dropped yesterday for a second time this week to 1,126.48 metric tons. Bullion also fell as a pause in the dollar’s decline diminished the precious metal’s appeal as an alternative investment.

“A switch in investment activity and a slowing in the purchase of exchange-traded products suggest that the risk of liquidation has grown,” said Yingxi Yu, a commodities analyst at Barclays Capital. “An end to the dollar’s weakening trend could therefore be a major setback for gold.”

Gold for immediate delivery fell as much as 0.6 percent to $1,131.15 an ounce, and traded at $1,134.38 by 2:04 p.m. in Singapore. February-delivery bullion on the Comex division of the New York Mercantile Exchange lost 0.2 percent to $1,134.50.

Spot gold advanced to $1,140.78 an ounce yesterday, the highest level since Dec. 17, 2008. It climbed 24 percent last year as the dollar tumbled 4.2 percent against a basket of six major currencies.

The dollar index rose today, capping a rally in other precious metals as well. Platinum and palladium declined, after climbing to the highest levels in more than 16 months on speculation demand will increase as the global economy recovers from the worst recession since World War II.

Japanese and Korean auto companies including Toyota Motor Corp. and Hyundai Motor Co. boosted U.S. sales last month 26 percent, according to company statements. The U.S. is the world’s largest auto market and about half of platinum and palladium use is for catalytic converters to filter engine gases.

Industrial Uses

“Both metals have industrial uses, so as expectations for a global economic recovery grows, the outlook for demand also brightens,” said Steven Zhu, head trader at Shanghai Tonglian Futures Co.

Platinum for immediate delivery traded little changed at $1,559 an ounce at 2:07 p.m. in Singapore, after rising as much as 0.6 percent to $1,566 earlier, the highest level since Aug. 11, 2008. April-delivery futures on the Comex division of the New York Mercantile Exchange gained to $1,569.90 an ounce.

Immediate-delivery palladium slid 0.6 percent to $425.50 an ounce, after earlier reaching $431.23 an ounce, the highest price since July 17, 2008. The metal for March delivery touched $431.80 an ounce.

A weaker dollar and anticipation of the introduction of exchange traded funds linked to both metals also aided the recent rally, said Zhu. The U.S. Securities and Exchange Commission approved proposed rule changes on Dec. 22 to list and trade shares of the ETFS Platinum and Palladium Trusts.

To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net