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Tuesday,- Gold Drops as Stronger Dollar Cuts Investor Demand
(That's what they are telling us, I call BS)

By Nicholas Larkin and Glenys Sim

Dec. 15 (Bloomberg) -- Gold fell in New York and London as a stronger dollar curbed demand for the precious metal as an alternative investment.

The dollar rose to more than a two-month high against the euro amid speculation the U.S. economic recovery will prompt the Federal Reserve to start reducing stimulus measures. Futures, which typically move inversely to the greenback, have dropped 9.2 percent since reaching a record $1,227.50 on Dec. 3, as the dollar gained 3.5 percent against the euro in the period.

“The dollar is reining in gold,” Narayan Gopalakrishnan, a Geneva-based trader at bullion refiner MKS Finance SA, said by phone today. “We’re still seeing a profit-taking mood. There was a rapid gain all the way up, too quick, too fast, and a correction is needed.”

Bullion futures for February delivery on the New York Mercantile Exchange’s Comex unit lost as much as $11.20, or 1 percent, to $1,112.60 an ounce and were at $1,114.40 by 8:23 a.m. local time. Gold for immediate delivery in London was 1.2 percent lower at $1,113.55.

The metal slipped to $1,115 an ounce in the morning “fixing” in London, used by some mining companies to sell production, from $1,123.75 at yesterday’s afternoon fixing. The dollar climbed as much as 0.9 percent against the euro today.

“It’s a dollar play for gold,” Zhang Dajiang, a senior analyst at Pioneer Metals Group, said from Beijing. “As long as the dollar stays resilient, we’re going to see volatility and some weakness in the gold price.”

Interest Rates

Bullion futures have increased 26 percent this year as record-low interest rates sent the dollar 5.4 percent lower against a basket of six major currencies and on concern inflation will accelerate. The Federal Open Market Committee will announce its decision on interest rates tomorrow at the end of a two-day meeting.

“Gold represents insurance against an inflationary outcome and given the low cost of ownership, it should continue to attract investors as long as the outlook for U.S. short-term interest rates remains unchanged,” Macquarie Group Ltd. analysts led by Jim Lennon wrote in a report.

U.K. inflation accelerated to the fastest pace in six months in November, the Office for National Statistics said today. The 1.9 percent increase from a year earlier beat economists’ forecasts.

Gold holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by the metal, increased 0.3 metric ton to 1,116.55 tons yesterday, its Web site showed. They reached a record 1,134 tons on June 1. Holdings in ETF Securities Ltd.’s exchange-traded products declined 0.3 percent to 7.841 million ounces yesterday, its Web site showed.

Silver for March delivery in New York fell 0.8 percent to $17.20 an ounce. Platinum for January delivery lost 0.7 percent to $1,437 an ounce, and palladium for March delivery was 0.8 percent lower at $365.25 an ounce.

ETF Securities’ silver holdings dropped 1.7 percent to 23.421 million ounces yesterday, while platinum assets increased 0.8 percent to a record 434,211 ounces.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a88ZWq8Fk9NU