Gold Falls as Commodity Slump Damps Inflation Concern

Dec. 23 (Bloomberg) -- Gold prices fell on speculation that a drop in commodity costs will damp demand for precious metals as a hedge against inflation. Silver and platinum also declined.

The Reuters/Jefferies CRB Index of 19 raw materials is down for a fifth straight session, heading for the biggest annual decline ever. Crude oil, gasoline, corn, soybeans, wheat and copper have tumbled from records in 2008. Gold has dropped 19 percent from the all-time high of $1,033.90 an ounce in March.

“Future inflationary pressures are weakening, and that’s putting a damper on gold,” said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. “Inflation is dissipating as crude oil continues to work its way lower.”

Gold futures for February delivery fell $9.10, or 1.1 percent, to $838.10 an ounce on the Comex division of the New York Mercantile Exchange. The price is little changed this year.

Silver futures for March delivery slid 60 cents, or 5.5 percent, to $10.26 an ounce on the Comex, the biggest drop since Dec. 1. The most-active contract has fallen 31 percent this year.

Platinum futures for April delivery dropped $10.70, or 1.2 percent, to $850.50 an ounce on the Nymex. Palladium for March delivery was little changed at $174.70 an ounce.

Gold rallied 31 percent last year as inflation rose at the fastest rate in almost two decades. Consumer prices dropped 1.7 percent in November, the most on record, as energy costs plunged. Crude-oil futures have plummeted 73 percent to less than $40 a barrel in New York from a record $147.27 in July.

Haven Demand

Still, gold may rebound should a deepening recession boost demand for the metal as a haven, said Tom Pawlicki, an analyst at MF Global Ltd. in Chicago.

“There’s still a group of traders worried that a recession will turn into a depression,” Pawlicki said. “They’re using gold as a source of safe haven.”

The U.S. fell into a recession in December 2007, according to the National Bureau of Economic Research in Cambridge, Massachusetts, the arbiter of the country’s business cycles.

Platinum may rally should the government’s bailout of General Motors Corp. and Chrysler LLC keep the U.S. auto industry from collapsing. Both platinum and palladium are used in pollution-control devices in cars and trucks.

“Platinum is a market based on the health of the auto industry,” Pawlicki said.

Platinum has dropped 44 percent this year. The price reached a record $2,308.80 in March. Palladium has plunged 54 percent in 2008.