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Gold 1138.30 - Could Drop
as Dollar’s Advance Erodes Demand; Platinum Rises

By Nicholas Larkin and Pham-Duy Nguyen

Jan. 19 (Bloomberg) -- Gold prices may fall as a rally by the dollar curbs demand for the metal as an alternative investment. Platinum futures rose a 17-month high.

The dollar gained as much as 0.8 percent against the euro after a report showed German investor confidence this month declined more than economists forecast. Before today, spot gold rallied 34 percent in the past year as the dollar lost 7.7 percent.

“The dollar has a bid to it, and that’s generally not supportive for gold prices,” said Frank Lesh, a trader at FuturePath Trading LLC in Chicago. “If the dollar strength continues, gold is going to work lower.”

Gold for immediate delivery was little changed at $1,133.50 an ounce at 11:12 a.m. New York time. The price climbed 0.2 percent yesterday after falling 0.6 percent last week.

Platinum and palladium futures rose after Bank of America Merrill Lynch raised its price forecasts. Holdings in exchange- traded products have climbed, partly on speculation that industrial demand will increase. The metals are used in pollution-control devices in cars and jewelry.

ETF Securities Ltd.’s ETFS Platinum Trust and ETFS Palladium Trust started trading on NYSE Arca on Jan. 8.

ETF Demand

“Assets are being re-allocated in favor of the newly issued platinum and palladium ETFs,” Commerzbank AG said in a note. “They seem to establish themselves as a large demand component.”

The platinum ETF has bought 195,000 ounces in the past 10 days, more than 10 times daily global production, Commerzbank said.

Platinum futures for April delivery rose $29.90, or 1.9 percent, to $1,626 an ounce on the New York Mercantile Exchange. Earlier, the price reached $1,647.70, the highest level for a most-active contract since Aug. 4, 2008. The market was closed yesterday for a U.S. holiday.

Palladium futures for March delivery climbed $11.30, or 2.5 percent, to $459.05. Earlier, the price reached $462.25, the highest level since July 7, 2008.

In a report dated yesterday, Bank of America-Merrill Lynch raised its 2010 forecast for platinum by 35 percent to $1,750 and increased its palladium estimate by 30 percent to $500.

“If the ETF has any kind of moderate success, it will propel these markets massively higher,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago.

Silver futures for March delivery rose 20.3 cents, or 1.1 percent, to $18.63 an ounce on the Comex division of the Nymex.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aGSLIHD031YQ