Gold Drops Most in a Week as Equity Rally Dulls Haven Demand

April 2 (Bloomberg) -- Gold fell the most in more than a week on speculation that the world economy will improve, eroding the appeal of the precious metal as a haven. Silver gained.

Global equity indexes rallied as Group of 20 leaders met to discuss economic stimulus plans amid mounting evidence the worst of the recession may be over. Manufacturing in China increased last month and home prices in the U.K. rose. Investment in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, has been unchanged since March 27.

“The fear is coming down, and so is gold,” said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois. “If gold is an indicator of fear and trepidation, as fear diminishes, people will sell gold.”

Gold futures for June delivery fell $18.80, or 2 percent, to $908.90 an ounce on the Comex division of the New York Mercantile Exchange, the biggest drop for a most-active contract since March 24.

The Standard & Poor’s 500 Index of equities jumped as much as 4.3 percent and the MSCI World Index climbed for a third straight day.

National leaders at the G-20 meeting agreed to a regulatory crackdown to rein in excesses and pledged more than $1 trillion in emergency aid to help ease the global recession. The summit produced a call for stricter rules governing hedge funds, executive pay, credit ratings and risks taken by banks.

IMF Gold Sale

Gold’s losses accelerated after a U.K. official said the International Monetary Fund should consider selling its gold reserves to raise cash. International Development Secretary Douglas Alexander said there has been discussion with South Africa about the market effects of a “phased and appropriate sale” of some IMF bullion reserves.

In April 2008, the Washington-based lender’s executive board approved a plan to sell 403.3 metric tons of bullion to help close an annual budget deficit. President Barack Obama’s administration soon will push Congress for legislation that allows the IMF to “mobilize” its stockpile of gold to boost its funds, Treasury Secretary Timothy Geithner said on March 11.

A move to sell gold must be supported by 85 percent of the lender’s executive board, and will require legislative action in most member countries, the IMF said in April 2008. The board representative from the U.S. needs congressional approval to vote in favor of any sales, the IMF said.

“The mere mention of the possibility of IMF gold sales making the rounds at the G-20 today is pressuring gold prices,” said Ralph Preston, a commodity analyst at Heritage West Futures Inc. in San Diego. A drop below $890 may trigger more selling, he said.

IMF Holdings

The IMF is the third-largest holder of gold reserves after the U.S. and Germany, according to the producer-funded World Gold Council. On its Web site, the lender says it has 3,217 metric tons (103.4 million ounces) in bullion deposits.

“You’ve got the IMF selling gold -- maybe it’s not a lot, but psychologically it would weigh on the market,” Prospector’s Kaplan said.

Silver, which has wider industrial applications than gold, rose on speculation that growth will spark demand for raw materials. The Reuters/Jefferies CRB Index of 19 commodities climbed as much as 3.1 percent, paced by gains in crude oil, gasoline and nickel.

Silver futures for May delivery gained 5 cents, or 0.4 percent, to $13.025 an ounce. Gold has climbed 2.8 percent this year while silver has risen 15 percent.