Gold Falls as Economy's Slump Damps Inflation; Platinum Gains

Nov. 18 (Bloomberg) -- Gold fell for the second straight day on speculation that the slumping global economy will reduce demand for commodities, eroding the appeal of the precious metal as a hedge against inflation. Platinum gained.
Prices paid to U.S. producers tumbled in October by the most on record, the Labor Department said today. The Reuters/Jefferies CRB Index of 19 raw materials is down 32 percent this year, and gold is headed for its first annual decline in eight years.
``The prospect that the economy is to weaken into 2009 will continue to keep commodity prices under wraps, including metals,'' said Stephen Platt, a commodity analyst at Archer Financial Services Inc. in Chicago. ``As long as you don't have the demand chasing goods, the wiping out of inflationary expectations is inevitable.''
Gold futures for December delivery declined $9.30, or 1.3 percent, to $732.70 an ounce on the Comex division of the New York Mercantile Exchange.
The threat of inflation has moderated as prices for oil, corn and other commodities fell from records this year. Gold rallied 31 percent in 2007 as the U.S. inflation rate reached 4.1 percent, the most since 1990.
``All commodities are seeing liquidation pressure,'' Platt said. ``You still have in the background some confidence issue, which is about the only thing keeping gold somewhat better off than many other assets.''
Gold is the sixth-best performer on the CRB Index this year, down 13 percent, the least of any precious metal.
Silver, Platinum
Steeper declines in silver and platinum may make those metals more attractive to investors than gold, analysts said.
Silver futures for December delivery gained 22 cents, or 2.4 percent, to $9.55 an ounce on the Comex. The metal has fallen 36 percent this year.
Platinum futures for January delivery rose $16.40, or 2 percent, to $837 an ounce on the Nymex. Palladium for December delivery fell $2.40, or 1.1 percent, to $215.30 an ounce.
Lonmin Plc, the world's third-largest platinum producer, will cut at least 50,000 ounces of annual output, halt expansion and eliminate a third of jobs at its London headquarters. Platinum is used in pollution-control devices and jewelry.
Platinum supply in 2008 will fall short of demand by 240,000 ounces, the most in five years, as global output drops faster than consumption because of mining disruptions in South Africa, said Johnson Matthey Plc, which makes a third of all autocatalysts, which use the metal.
Platinum has plunged 64 percent from a record $2,308.80 on March 4 and is down 45 percent this year.
`Stronger Price' Possible
``It was the speculator binges that caused the price to go up and then down this year more than the fundamentals,'' said Peter Duncan, the market-research general manager at Johnson Matthey. ``If the fundamentals were to kick back in, they would support a stronger price.''
Platinum may drop as low as $700 and rise as high as $1,400 in the next six months, Johnson Matthey said.
Commodity prices will recover once the financial crisis eases, said Tom Hartmann, a commodity analyst at Altavista Worldwide Trading Inc. in Mission Viejo, California.
``There's so much money on the sidelines,'' Hartmann said. ``When that money starts coming back to the equity markets, then you'll see some money start to flow back into commodities. That's when inflation can get ugly.''