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1090.80 - Gold Declines as Dollar Rebounds
By Pham-Duy Nguyen

Dec. 21 (Bloomberg) -- Gold fell after the dollar rebounded, eroding the appeal of the precious metal as an alternative investment.

The dollar rose as much as 0.3 percent against a basket of six major currencies, extending this month’s rally to 4.2 percent. Before today, gold gained 26 percent this year and reached a record $1,227.50 an ounce on Dec. 3 as near-zero U.S. interest rates drove the dollar to a 15-month low on Nov. 26.

“The dollar is rallying now, and that’s taken the wind out of gold’s sails,” said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago.

Gold futures for February delivery fell $15.50, or 1.4 percent, to $1,096 an ounce on the Comex division of the New York Mercantile Exchange.

The dollar rose on speculation that the Federal Reserve will raise interest rates next year as the economy improves. Gold fell 5.4 percent in the previous three weeks as the dollar gained 3.8 percent.

Futures trading in Chicago indicated a 36 percent chance that policy makers would increase the target rate for overnight lending to 0.5 percent in June, up from 27 percent odds a month ago. The Federal funds rate has been between zero and 0.25 percent since last December.

Gold will underperform other commodities and equities in 2010, said Michael Darda, the chief economist for MKM Partners LP in Greenwich, Connecticut.

“A stable to rising dollar and a stronger-than-expected U.S. recovery next year should be a restraint on the price of gold,” Darda said today in a Top-10 list of predictions for 2010.

Darda in January predicted gold would rise above $1,000 this year.

Annual Gain

Gold is headed for the ninth straight annual gain. Holdings in the SPDR Gold Trust, the biggest exchange-traded fund backed by the metal, increased 6.1 metric tons to 1,126.61 tons on Dec. 18, its Web site showed. They climbed to a record 1,134 tons on June 1.

Russia’s central bank bought 30 metric tons of gold from the state precious-metals and gems depository Gokhran for about $1 billion, the Finance Ministry said. India, Sri Lanka, and Mauritius have also increased their holdings of bullion this year.

Dennis Gartman, an economist, hedge-fund manager and editor of the Suffolk, Virginia-based Gartman Letter, recommended buying gold in foreign currencies.

“We remain quite bullish of gold, but in terms of euros, sterling and yen,” he said.

In other metals markets, silver for March delivery fell 28.5 cents, or 1.6 percent, to $17.035 an ounce. The metal is up 51 percent this year.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aDYRClW8OmUc