Gold Declines as Some Investors Sell to Cover Losses in Equity Markets

By Nicholas Larkin - Sep 12, 2011 7:17 PM GMT+0700

Gold declined in New York as some investors sold the metal to cover losses in equities that dropped on concerns that the European debt crisis is worsening.

European and Asian stocks slumped on speculation German Chancellor Angela Merkel is preparing for a Greek default. The dollar was little changed after earlier today climbing to the highest level in more than six months against six major currencies. Gold touched an all-time high $1,923.70 an ounce on Sept. 6 and today set records priced in euros and Swiss francs.

“The margin clerks will be sharpening their knives today and will take dead aim even upon gold if that is where they think they can find liquidity,” Dennis Gartman, an economist and the editor of the Suffolk, Virginia-based Gartman Letter, said in his daily report. Some investors “will argue that gold will prove valuable and will hold its value even as stock prices plunge, and in the long run they may well be right.”

Gold for December delivery fell $16.70, or 0.9 percent, to $1,842.80 an ounce by 8 a.m. on the Comex in New York. Immediate-delivery gold was 0.9 percent lower at $1,839.68 in London.

Bullion is in the 11th year of a bull market, the longest winning streak since at least 1920 in London, as investors seek to diversify away from equities and some currencies. The metal is up 30 percent this year, outperforming global stocks, commodities and Treasuries.

Germany’s Banks

Officials in Merkel’s government are debating how to shore up German banks in the event that Greece fails to meet the budget-cutting terms of its aid package and is unable to get a bailout-loan payment, three coalition officials said on Sept. 9. Merkel is due to hold talks on the debt crisis with European Commission President Jose Manuel Barroso today.

BNP Paribas SA, Societe Generale SA and Credit Agricole SA, France’s largest banks by market value, may have their credit ratings cut by Moody’s Investors Service as soon as this week because of their Greek holdings, two people with knowledge of the matter said.

“While gold is capable of rallying in the face of a strong dollar, an extended upward move in the dollar does put some obstacles in its path,” Edel Tully, a London-based analyst at UBS AG, wrote in a report. Still, “gold should benefit from the scaling back of risk appetite on what appear to be rising fears of a Greek default, contagion to the rest of the periphery, and the impact on banks.”

Gold exchange-traded-product holdings rose on Sept. 9 for the first time since Aug. 30, gaining 11.8 metric tons to 2,149.8 tons, data compiled by Bloomberg show. Assets reached a record 2,216.8 tons on Aug. 8.

Silver for December delivery in New York slipped 1.5 percent to $40.995 an ounce. Platinum for October delivery was down 1.2 percent at $1,816.10 an ounce. Palladium for December delivery dropped as much as 2.5 percent to $720.15 an ounce, the lowest price since Aug. 9, and was last at $725.05.

To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net.