Gold Falls as Demand Ebbs After Rally to $1,000; Silver Drops

Feb. 24 (Bloomberg) -- Gold fell the most in six weeks as demand ebbed following a rally last week that sent the precious metal above $1,000 an ounce. Silver also declined.

Before sliding today, gold’s seven-day relative-strength index had topped 70 since Feb. 17, a signal that prices may drop in the short term. For the first time since Jan. 28, investment in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, was unchanged for three straight sessions. The assets rose 4.4 percent last week to a record 1,029 metric tons.

“If the ETF inflows do not start again within a day or two, some traders may attempt to test the downside in gold,” John Reade, a metals strategist at UBS AG in London, said today in a note.

Gold futures for April delivery fell $25.50, or 2.6 percent, to $969.50 an ounce on the New York Mercantile Exchange’s Comex division, the biggest decline for a most-active contract since Jan. 12. Yesterday, the price dropped 0.7 percent.

The metal still has gained 9.6 percent this year. Last week, the price reached $1,007.70, the highest since March 18.

Silver futures for March delivery dropped 45.5 cents, or 3.1 percent, to $13.995 an ounce. The metal is still up 24 percent this year.

Investments in ETFs have helped drive gold and silver prices up this year. Gold and silver were the best performers in the Reuters/Jefferies CRB Index of 19 commodities this year until today.

ETF Growth

Assets in the SPDR Gold Trust have grown 32 percent in 2009 and investment in Barclays Plc’s IShares Silver Trust, the biggest ETF backed by silver, increased 20 percent this year to a record 8,180.5 metric tons yesterday.

“Players had little to choose from as a motivator to load up on more bullion,” said Jon Nadler, an analyst at Kitco Inc. in Montreal. “The gold ETF is reflecting the same wait-and-see attitude.”

Still, a drop in prices may encourage investors seeking a haven from financial turmoil to buy precious metals, said Tom Pawlicki, an analyst at MF Global Ltd. in Chicago.

Federal Reserve Chairman Ben S. Bernanke said the U.S. recession may last into 2010 unless policy makers can stabilize the financial system.

Gold rose 6.4 percent last week as the Standard & Poor’s 500 Index fell 6.9 percent. Stocks in Asia and Europe retreated today. U.S. stocks advanced after six days of declines.

“Gold and other precious metals should continue to receive inflows of investment due to their ongoing outperformance of other asset classes,” Pawlicki said. “Support will continue to come from disappointment in efforts to stem the financial crisis, and the weakness in the stock market that has resulted.”