Gold, Silver Fall on Concern Recession to Curb Commodity Demand

Jan. 15 (Bloomberg) -- Gold and silver fell for the fourth straight day on concern the recession will deepen, reducing demand for commodities, including precious metals.

The Dow Jones Industrial Average declined for a seventh session, and the Reuters/Jefferies CRB Index of 19 raw materials headed for the third decline this week. First-time claims for U.S. unemployment benefits rose more than forecast, and the European Central Bank reduced its benchmark interest to stimulate growth.

“The stock markets have plummeted again and dragged down commodities and all the metals,” said Tom Hartmann, a commodity analyst at AltaVest Worldwide Trading Inc. in Mission Viejo, California. “There is deflation. All prices are falling.”

Gold futures for February delivery fell $1.50, or 0.2 percent, to $807.30 an ounce on the Comex division of the New York Mercantile Exchange.

Silver futures for March delivery dropped 3.5 cents, or 0.3 percent, to $10.44 an ounce. The metal slumped 24 percent in 2008.

This week, gold has dropped 5.6 percent, and silver is down 7.8 percent.

Gold rose 5.5 percent last year, the smallest gain since 2004, as the CRB fell 36 percent and the Dow lost 34 percent. Equities fell today on concern banks will need more government aid.

The metals dropped today as the dollar climbed and crude oil fell as much as 11 percent. A report also showed declining producer prices in December, reducing gold’s appeal as an inflation hedge.

‘Not Inflationary’

“A rising dollar coupled with falling energy prices is not inflationary,” Ira Epstein, the president of Ira Epstein & Co. in Chicago, said in a report. “There is no inflation yet for gold to hang its hat on.”

Gold rallied 31 percent in 2007 as the inflation rate rose the most in two decades. Government bailouts and low interest rates will stoke inflation eventually, analysts said.

The Federal Reserve has reduced its benchmark interest rate to zero to 0.25 percent. The ECB slashed borrowing costs to 2 percent from 2.5 percent.

Since the second quarter of 2007, banks worldwide have posted more than $1 trillion in losses and writedowns related to investments in sub-prime mortgages. As of November, the U.S. pledged $8.5 trillion to rescue financial companies and help the country recover from a recession.

“Until inflation shows signs of surfacing, gold has a better chance of holding value off of shocks to world economic woes than inflation,” Epstein said. “That will change if the stimulus package and other moves world governments are initiating take hold. Inflation will return in a serious way but that time is not now.”