Gold Falls in London as Stronger Dollar Curbs Investment Demand

By Kim Kyoungwha and Nicholas Larkin

Jan. 15 (Bloomberg) -- Gold declined in London, erasing a weekly gain, as a stronger dollar sapped demand for the metal as an alternative asset. Palladium climbed to an 18-month high.

The U.S. Dollar Index, a six-currency gauge of the strength of the greenback, rose for the first time in six days. It gained on speculation Chinese growth will weaken because of a slowdown in local bank lending and on concern that investor confidence in European assets will wane as Greece struggles to cut its budget deficit. Gold typically moves inversely to the greenback.

“It’s the dollar move driving prices,” said Afshin Nabavi, a senior vice president at bullion refiner MKS Finance SA in Geneva. “There’s some light bargain-hunting” when prices fall below $1,130 to $1,140 an ounce, he said.

Gold for immediate delivery slid $10.25, or 0.9 percent, to $1,132.60 an ounce at 11:32 a.m. local time. Prices are down 0.5 percent this week. Bullion for February delivery fell 0.9 percent to $1,133.20 on the New York Mercantile Exchange’s Comex division.

The metal dropped to $1,132 an ounce in the morning “fixing” in London, used by some mining companies to sell production, from $1,138.25 at yesterday’s afternoon fixing. Spot prices last week gained for the first time since November.

Bullion rallied 24 percent in 2009, the ninth straight annual gain, and reached an all-time high of $1,226.56 an ounce on Dec. 3. The dollar index, which added as much as 0.6 percent today, declined 4.2 percent last year.

Interest Rates

The dollar index is still on course for a second weekly decline amid prospects that the Federal Reserve may keep interest rates near zero to spur the economic recovery. U.S. jobless claims climbed 2.5 percent, the most in five weeks, and retail sales slipped 0.3 percent in December after a 1.8 percent jump a month ago, data showed yesterday.

“The near-term outlook is neutral, with the longstanding factors that have been driving the price higher, such as economic uncertainty and dollar weakness, still in play,” said Gavin Wendt, a senior analyst at Mine Life Pty in Sydney. “My overwhelmingly bullish longer-term view, however, remains firmly in place.”

Gold may gain next week as investors seek an alternative to the dollar, a survey showed. Twelve of 19 traders, investors and analysts surveyed by Bloomberg, or 63 percent, said the metal would rise. Five forecast lower prices and two were neutral.

Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, fell 2.13 metric tons to 1,113.75 tons yesterday, according to the company’s Web site.

Among other precious metals for immediate delivery in London, silver fell 1 percent to $18.49 an ounce. Platinum lost 0.6 percent to $1,603.75 an ounce. Palladium jumped as much as 2.2 percent to $454 an ounce, the highest price since July 15, 2008, and was last at $449.83.

Exane BNP Paribas raised its 2010 palladium estimate by 57 percent to $400 an ounce and increased its platinum forecast by 22 percent to $1,550 because of “better supply-demand balances,” it said in a report today.

To contact the reporters on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net; Nicholas Larkin in London at nlarkin1@bloomberg.net