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Silver drops as Gold Heads
for Biggest Two-Day Slump Since October on Dollar

By Nicholas Larkin and Pham-Duy Nguyen

Dec. 7 (Bloomberg) -- Gold futures fell, heading for the biggest two-session drop since October 2008, after the dollar’s rebound curbed the metal’s appeal as an alternative asset.

The dollar climbed to a one-month high against the euro. On Dec. 4, gold tumbled 4 percent, the most in a year, after surging to a record $1,227.50 an ounce in the previous session. Before today, the metal climbed 32 percent this year, poised for a ninth straight annual gain.

“The dollar is the prime motivator for gold’s decline,” said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois. “I don’t think it’s over for gold, but it’s the end of the year, and people are taking profits.”

Gold futures for February delivery fell $26.10, or 2.2 percent, to $1,143.40 at 11:36 a.m. on the Comex division of the New York Mercantile Exchange. A close at that price would mark the biggest two-session drop since Oct. 23, 2008.

The rally this year has outpaced returns in global equities and bonds.

“The market was extremely long, and it could very well be that we see more pressure on the downside,” said Afshin Nabavi, a senior vice president at bullion refiner MKS Finance SA in Geneva.

Gold will resume a climb to $1,300 next year, Bob Takai, the general manager of financial services at Sumitomo Corp., said today in a Bloomberg Television interview. The current drop is “not a big surprise,” he said.

“We advise selling into rallies” as prices approach $1,200, “probably our new strategy into year-end,” Walter de Wet, a Standard Bank Ltd. analyst in London, said today in a report. The bank had recommended buying on dips since August.

Trend ‘Intact’

“We still see the longer-term bull trend for gold intact in 2010,” he said.

The metal may rise to $1,250 to $1,300 in “coming months,” JPMorgan Chase & Co. said in a report today. Credit Suisse said gold may drop to $900 to $1,000 by the end of the first quarter before rallying to $1,100 to $1,200 by the same time a year later.

The dollar has slumped this year as the Federal Reserve kept its interest rate close to zero percent since December 2008 to revive lending after the worst financial crisis since World War II. Buying from funds, individual investors and central banks drove gold higher.

Futures traders see a 3.2 percent chance that the Fed may lift its benchmark rate to 0.5 percent in January, while the probability of an increase in March has climbed to 12 percent from 10 percent a week ago.

Silver futures for March delivery fell 55.5 cents, or 3 percent, to $17.965 an ounce in New York.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aSdh8tKqhMEM