Gold Falls After Reaching 11-Month High in N.Y.; Silver Drops

Feb. 23 (Bloomberg) -- Gold fell in New York as some investors sold the metal after a rally last week to the highest price since March. Silver also declined.

Investment in the SPDR Gold Trust, the biggest exchange- traded fund, or ETF, backed by bullion, rose 4.4 percent last week to a record 1,029 metric tons. Gold’s seven-day relative strength index topped 80 on Feb. 20, when the metal touched $1,007.70 an ounce, the highest since March 18. Analysts say a reading above 70 often signals a price drop in the short term.

“That $1,000 level stopped gold,” said Frank Lesh, a trader at FuturePath Trading LLC in Chicago. “Gold is overbought. This isn’t the end of the bull run. You’d rather see a slower, steadier build.”

Gold futures for April delivery fell $7.20, or 0.7 percent, to $995 an ounce on the Comex division of the New York Mercantile Exchange. The price is still up 13 percent this year.

Silver futures for March delivery fell 4 cents, or 0.3 percent, to $14.45 an ounce. The metal has climbed 28 percent this year.

Gold prices dropped as much as 2.6 percent earlier as the Standard & Poor’s 500 Index rose as much as 1 percent before declining. The index sank 6.9 percent last week when gold gained 6.4 percent.

“We continue to be wary of a bear-market rally in equities as profit-taking could see gold correct,” John Reade, a UBS AG metals strategist in London, said today in a report. “We merely highlight the risks that large, long-gold positions on the Comex pose to investors here.”

Long Positions

As of Feb. 17, speculative long positions, or bets prices will rise, increased 1 percent to outnumber short positions by 165,921 contracts on Comex, the Commodity Futures Trading Commission said last week in Washington. That’s the highest level since July 29.

Still, a pullback in prices may be a buying opportunity, some investors said.

“Gold is about the only commodity that’s going higher,” FuturePath’s Lesh said. “There’s a lack of confidence in paper assets. Right now, the gold ETF is getting a lot of capital that would normally go to a bank or equities. There’s a perception that gold is going to hold its value.”

Gold will rise to $1,050 within a month, up from a previous forecast of $900, Reade of UBS said. The metal will trade around $1,100 in three months, he said. Silver will trade at $15.75 within a month and $17 within three months, according to Reade.