Gold Retreats for a Second Day as Asian Holidays Erode Physical Demand

By Nicholas Larkin and Glenys Sim - Jan 25, 2012 6:44 PM GMT+0700

Gold dropped for a second day in London as physical demand slumped due to holidays in Asia and as investors await the outcome of a Federal Reserve meeting.

Economists expect the U.S. central bank will maintain a pledge to keep its benchmark interest rate near zero at its meeting today. European equities declined and commodities were little changed. Financial markets in China, Hong Kong and Taiwan are closed today for the Lunar New Year.

“In the absence of sustained physical interest, gold is prone to a little more downside this week as bullion continues trading with global risk sentiment,” Andrey Kryuchenkov, an analyst at VTB Capital in London, wrote today in a report. Still, the Fed is “set to remain accommodative for now which is, as ever, gold-beneficial in the long run.”

Bullion for immediate delivery fell 0.6 percent to $1,656.20 an ounce by 11:24 a.m. in London. Prices dropped 0.7 percent yesterday, the most since Dec. 28. Gold for February delivery was down 0.5 percent at $1,655.80 on the Comex in New York.

Gold at the morning “fixing,” used by some mining companies to sell output, declined to $1,659 an ounce in London from $1,665.50 at yesterday’s afternoon fixing.

The metal climbed 10 percent in 2011, an 11th consecutive annual gain, as investors sought to diversify from equities and some currencies. While gold slid 14 percent since touching a record $1,921.15 in September, holdings in bullion-backed exchange-traded products are within 1.9 percent of last month’s all-time high. Assets were 2,349.2 metric tons yesterday, data compiled by Bloomberg show.

Fed Forecasts

The Fed said last week it will provide two charts with the forecasts for the benchmark rate after the meeting of policy makers. It left the target for overnight loans between banks in a range of zero to 0.25 percent last month and reiterated that economic conditions may warrant “exceptionally low” rates “at least” through mid-2013. They will keep the key rate unchanged today, according to a Bloomberg survey.

“It’s all about the dollar,” said Nick Trevethan, an analyst at Australia & New Zealand Banking Group Ltd. “This is the first time the Federal Open Market Committee is giving its forecast, and I think people are keen to see what it looks like.”

Silver for immediate delivery dropped 0.6 percent to $31.865 an ounce. It’s the best-performing precious metal this year with a gain of 14 percent.

Palladium fell 0.8 percent at $674.50 an ounce after rising to a four-month high of $689.50 yesterday. Platinum was down 0.4 percent at $1,544.75 an ounce. It yesterday climbed to $1,568.50, the highest price since Dec. 2.

To contact the reporters for this story: Nicholas Larkin in London at nlarkin1@bloomberg.net; Glenys Sim at gsim4@bloomberg.net

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