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Dollar Index Extends Gains, Gold Drops in New York, London

Nov. 27 (Bloomberg) -- Gold dropped in New York and London as gains in the dollar damped demand for the precious metal as an alternative asset.

The U.S. Dollar Index, a six-currency gauge of the greenback’s value, extended its rebound from a 15-month low after Dubai’s efforts to reschedule its debt rattled investors. Prices of other precious metals, crude oil and most industrial metals on the London Metal Exchange declined. Gold reached a record in London and New York yesterday.

“The market is reacting to the news on Dubai,” said Bernard Sin, head of currency and metals trading at bullion refiner MKS Finance SA in Geneva. “A dollar bounce likely means gold will sell off. People are trying to take profits.”

Futures for February delivery on the New York Mercantile Exchange’s Comex unit slid $9.70, or 0.8 percent, to $1,178.90 an ounce by 11:50 a.m. local time. The metal didn’t settle yesterday because of a public holiday. Gold for immediate delivery dropped 0.9 percent to $1,177.63 in London.

The metal rose to $1,166.50 in the afternoon “fixing” in London, used by some mining companies to sell production, from $1,164.50 in the morning fixing. Spot prices are up 2.3 percent this week, set for a fourth weekly increase.

The dollar index gained as much as 1 percent as Dubai World, the government investment company with $59 billion of liabilities, sought to delay repayment on debt. The currency measure is down 7.7 percent this year.

Buying Opportunity

Gold’s drop today may be an opportunity for buyers, analysts including Goldman Sachs (Asia) LLC’s Janet Kong and Standard Bank Ltd.’s Walter de Wet said.

Gold futures, up 33 percent this year, are set for a ninth annual gain as central banks, pension funds and individual buyers seek to protect their assets from potential currency debasement and inflation. Central banks will remain net buyers in the year ahead, for the first time in more than two decades, Standard Chartered Plc said in a report today.

“Central banks’ appetite for gold is currently very strong,” said Stefan Graber, a commodity analyst with Credit Suisse Group AG. “We’re likely to see more central banks stepping up their gold purchases.”

Sri Lanka bought 10 metric tons of gold for about $375 million from the International Monetary Fund, the IMF said on Nov. 25, joining India and Mauritius in buying gold and spurring speculation more central banks will follow suit. Russia’s central bank has also increased its bullion holdings.

Silver for March delivery in New York fell as much as 5.7 percent to $17.72 an ounce, and last traded at $18.425. Platinum for January delivery declined 1.8 percent to $1,453 an ounce.

The metal will probably outperform gold in the year ahead on improving industrial demand and higher production costs, Standard Chartered Plc said. Palladium for March delivery slid as much as 5.9 percent to $352 an ounce, and was last at $368.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aqSgCMNXoL04