Gold Falls as Demand Ebbs After Rally Tops $950; Platinum Drops

Feb. 13 (Bloomberg) -- Gold prices fell as demand for the precious metal eased after a three-day rally to the highest since July. Platinum also declined.

The seven-day relative-strength index for gold topped 70 yesterday, a signal that prices are headed lower in the near term. Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, rose more than a 100 metric tons this week to a record 970.6 tons. Futures reached $954 an ounce yesterday, the highest since July 22.

“The popularity of the long-gold view is based on uncertainty among other asset classes and remains a crowded trade,” analysts at Deutsche Bank AG said today in a report. “Current support will be found around $930, but $950 could trigger profit-taking.”

Gold futures for April delivery dropped $7, or 0.7 percent, to $942.20 an ounce on the Comex division of the New York Mercantile Exchange. The metal gained 3.1 percent this week.

Gold will average $950 this quarter and $975 in the second quarter, Deutsche Bank said. Futures have averaged $880.87 in 2009.

Holdings in the SPDR Gold Trust may soon exceed official reserves of Switzerland, the world’s sixth-largest stockpile. Investment in the ETF jumped 12 percent this week on demand for the metal as a store of value amid concern that the recession and banking crisis may deepen.

‘Fundamental Strength’

“It shows the longer-term fundamental strength of gold,” said Dennis Gartman, an economist and the editor of the Suffolk, Virginia-based Gartman Letter. “It is impressive. It is also disconcerting, for when participation by the public becomes this one-sided, we are right to be modestly concerned.”

Gold may ease to $910 to $915 over the next few sessions, Gartman said.

A drop may signal a buying opportunity, some investors said.

“The reckless abandon with which the administration and Congress commit to hundreds of billions of dollars of spending will mean the devastation of the dollar, which will lead foreign central banks and investors to abandon the dollar as a core holding,” said Adrian Day, the president of Adrian Day Asset Management in Annapolis, Maryland. “Gold can only benefit.”

The U.S. has committed as much as $9.7 trillion to helping ease the recession and solve the banking crisis. Gold was the only precious metal to rally last year, gaining 5.5 percent.

Silver futures for March delivery rose 11.5 cents, or 0.9 percent, to $13.625 an ounce today. Earlier, the price dropped as much as 2.1 percent. The metal gained 3.5 percent this week.

Platinum futures for April delivery declined $16.90, or 1.6 percent, to $1,061 on the Nymex. Palladium futures for March delivery were unchanged at $216.50 an ounce. Earlier, the price dropped as much as 1.2 percent.

This week, platinum jumped 5.6 percent, and palladium climbed 1.5 percent.