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Gold Falls to 1097.80
Three-Week Low on Bets Dollar to Extend Rally

By Pham-Duy Nguyen

Jan. 21 (Bloomberg) -- Gold futures fell to a three-week low on speculation that the dollar will extend a rally, curbing demand for the precious metal as an alternative investment. Silver and platinum also slumped.

The euro dropped to a five-month low against the dollar. The greenback has rallied partly on demand for a haven amid a slump in equities.

“The dollar is just incredibly strong, and that’s forcing gold lower,” said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois.

Gold futures for February delivery dropped $9.40, or 0.8 percent, to $1,103.20 an ounce on the Comex unit of the New York Mercantile Exchange. Earlier, the price touched $1,088, the lowest level for a most-active contract since Dec. 30.

China is taking steps to tighten credit and limit growth after its economy surged in the fourth quarter and inflation accelerated.

“The dollar continued receiving a boost from safe-haven seekers spooked by the prospect of easy money drying up all over the place,” Jon Nadler, a senior analyst at Kitco Inc. in Montreal, said in a report.

The Reuters/Jefferies CRB Index of 19 raw materials fell as much as 1 percent after declining 1.3 percent yesterday. The Dow Jones Industrial Average fell as much as 2.2 percent today, erasing this month’s gain.

“China was the driving engine behind commodities,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. “You have a wave of asset liquidation coming through” that triggered more sales, he said.

Gold may extend its decline after breaching the 50-day moving average yesterday, said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago.

‘Snap Back’

“The next session or two will be very important,” Zeman said. “We need to see gold snap back fairly quickly. If gold can’t recapture the 50-day, you’ve got to get bearish very quickly.”

In 2009, gold climbed for a ninth straight year as governments cut interest rates and spent trillions of dollars to prop up economies. Central banks in nations including India and China boosted bullion reserves. Russia’s central bank said on its Web site that it added 800,000 ounces to gold reserves last month, increasing holdings to 20.5 million ounces.

Silver futures for March delivery tumbled 37 cents, or 2.1 percent, to $17.51 an ounce in New York.

Platinum futures for April delivery fell $25.50, or 1.6 percent, to $1,592.10 an ounce.

Palladium futures for March delivery slid $8.10, or 1.8 percent, to $453.95 an ounce.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a1A5xuxx1EaM