Gold Falls as Recession Erodes Commodity Demand; Silver Drops

Feb. 3 (Bloomberg) -- Gold fell for a second straight day on speculation that a global slowdown will erode demand for all commodities. Silver and platinum also declined.

The U.S. Senate is weighing an estimated $885 billion economic stimulus plan backed by President Barack Obama. A record 19 million U.S. homes stood empty at the end of the year as bank seizures outpaced sales, the Census Bureau reported. Gold’s gains in 2008 were the smallest since 2004.

“The reality is we’re still stuck in a deflationary mode,” said Tom Hartmann, a commodity analyst at Altavest Worldwide Trading Inc. in Mission Viejo, California. “There’s potential inflation in the future that will help gold, but right now we’re just seeing worsening economic conditions.”

Gold futures for April delivery fell $14.70, or 1.6 percent, to $892.50 an ounce on the New York Mercantile Exchange’s Comex division. The price fell 2.3 percent yesterday, the biggest drop in three weeks.

“Investment has been a key supporting factor for gold,” said Tom Pawlicki, an analyst at MF Global Ltd. in Chicago. “Passage of the stimulus package in its current form would likely be inflationary and bullish for gold while a Senate filibuster would be bearish.”

Gold rallied 5 percent last month as the Standard & Poor’s 500 Index lost 8.6 percent and the Reuters/Jefferies CRB Index of 19 raw materials dropped 4 percent. Investment in the SPDR Gold Trust, the biggest exchange-traded fund, or ETF, backed by bullion, rose to a record 853.4 metric tons yesterday.

“Rapidly growing ETF holdings are a clear sign of safe- haven buying of gold,” said John Reade, a UBS AG analyst in London.

Gold Outlook

Gold may fare better than other precious metals which have wider industrial applications as a global slowdown reduces demand for raw materials, analysts said.

Gold may top $2,000 as the recession deepens, said Eric Sprott, who manages $4.5 billion at Sprott Asset Management Inc. in Toronto. The metal has risen for eight straight years and gained in five of the past six U.S. recessions.

Most platinum is used in emissions-control parts for car and truck engines. Ford Motor Co. said U.S. sales fell 40 percent in January and Toyota Motor Corp. posted a 32 percent drop.

Silver futures for March delivery dropped 11.5 cents, or 0.9 percent, to $12.30 an ounce. The metal slumped 24 percent in 2008 while gold gained 5.5 percent.

Platinum futures for April delivery declined $15.60, or 1.6 percent, to $963.50 an ounce on Nymex. The metal gained 5.3 percent in January after falling 38 percent last year.

Palladium futures for March delivery fell $5.50, or 2.8 percent, to $192.95 an ounce on Nymex. The metal rose 2.4 percent last month after declining 50 percent in 2008.