Gold Drops to Two-Week Low in New York as Dollar Saps Demand

By Nicholas Larkin and Kim Kyoungwha

Feb. 25 (Bloomberg) -- Gold fell to the lowest price in almost two weeks in New York as a stronger dollar eroded demand for the metal as an alternative investment.

The dollar neared a nine-month high against the euro as concern that Greece’s credit rating may be lowered cut demand for assets denominated in the single European currency. Gold, down for a fourth day, usually moves inversely to the dollar.

The “lower gold price is dictated by the weakness in the euro,” said Bayram Dincer, a commodity analyst at LGT Capital Management in Pfaeffikon, Switzerland. “Short term, higher risk aversion will not benefit gold, as this risk premium is already incorporated in the gold price.”

Gold futures for April delivery fell as much as $8.70, or 0.8 percent, to $1,088.50 an ounce on the New York Mercantile Exchange’s Comex unit, the lowest intraday price since Feb. 12. The metal was at $1,092.90 at 8:33 a.m. local time. Gold for immediate delivery in London was 0.5 percent lower at $1,092.07.

The metal slipped to $1,092.75 an ounce in the morning “fixing” in London, used by some mining companies to sell production, from $1,103 at yesterday’s afternoon fixing. Spot prices are 11 percent below a record $1,226.56 set on Dec. 3.

The euro has slumped as European finance ministers this month put more pressure on Greece to rein in its deficit while refusing to specify potential aid measures. That disappointed investors who were looking for details on assistance.

‘Flood Gates’

“Investor money looking for safe assets should be the factor” driving gold lower, said Tetsuya Yoshii, vice president for derivative products with Mizuho Corporate Bank Ltd. in Tokyo. Bullion “might have a $20 to $40 correction on the downside,” he said.

Germany has denied that concrete plans exist to aid Greece. Granting assistance would “open the flood gates” for other euro-area nations with soaring deficits, former European Central Bank Chief Economist Otmar Issing said yesterday.

The euro slipped against the dollar today after Standard & Poor’s and Moody’s Investors Service said Greece faces further downgrades as early as next month as it copes with the European Union’s biggest budget deficit. Unions took to the streets of Athens and police fired tear gas and clashed with demonstrators.

Gold is little changed this year after rising 24 percent in 2009 as governments boosted spending and central banks kept interest rates low to pull economies out of the longest recession since World War II. The U.S. economy needs low borrowing costs to feed demand in its “nascent” recovery, Federal Reserve Chairman Ben S. Bernanke said yesterday.

SPDR Holdings

Gold holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, were unchanged at 1,106.99 metric tons yesterday, according to the company’s Web site.

Investment demand for commodities, especially metals, may wane in the next three months on concern that the global economic recovery might be slower than expected, according to Allianz Investment Management.

“There could be a lot of unwinding” of bets that raw materials will advance, Nikhil Srinivasan, who oversees about $30 billion of assets as Allianz’s chief investment officer for Asia and the Middle East, said in an interview yesterday. “That will keep them from having a strong year.”

Silver for May delivery in New York fell 1.2 percent to $15.78 an ounce. Platinum for April delivery added 0.6 percent to $1,516 an ounce. Palladium for June delivery was 1 percent lower at $420.05 an ounce.

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