Gold, Silver Drop as Equity Rally Curbs Demand; Platinum Gains

May 18 (Bloomberg) -- Gold fell the most this month in New York, halting a four-day rally, as gains in global equity markets eroded the appeal of the precious metal as an alternative asset. Silver also declined, and platinum rose.

The Standard & Poor’s 500 Index added as much as 2.3 percent today, rebounding from a 5 percent decline last week. Some investors buy precious metals to preserve wealth and as a haven during financial turmoil. Gold jumped 1.8 percent last week as equities fell.

“Safe-haven flows seem to have ebbed out of the gold market,” said Jon Nadler, a senior analyst at Kitco Inc. in Montreal. “People see the gains in stocks and they think, ‘Let’s take a little bit of money off the gold table and put it into where the action is.’”

Gold futures for June delivery dropped $9.60, or 1 percent, to $921.70 an ounce on the Comex division of the New York Mercantile Exchange. The drop is the steepest since April 30.

The price rallied to $934.80 last week, the highest since April 1, as equity declines spurred concern that the economy may slow and boosted the precious metal’s appeal as a haven.

“Some of the funds that have been piling into gold in the last few weeks have pulled the profit trigger once again after the rally,” Nadler said. “There’s a tug-of-war going on now between: Do we see an economic recovery and do we still see safe-haven flows.”

Speculator Holdings

Hedge-fund managers and other large speculators increased their net-long position in New York gold futures by 6.8 percent in the week ended May 12, according to U.S. Commodity Futures Trading Commission data. Speculative long positions, or bets prices will rise, outnumbered short positions by 138,877 contracts on the Comex.

Silver futures for July delivery slipped 18 cents, or 1.3 percent, to $13.83 an ounce on the Comex.

Slowing jewelry demand in the past week may mean “gold above $920 an ounce is too pricey for many buyers,” John Reade, an analyst at UBS AG in London, wrote today in a report. Still, “this is the first time we have seen any noticeable jewelry demand above $900 an ounce, and in particular, the buying from India suggests that demand later in the year should increase a lot ahead of the Diwali festival.”

People in India, the world’s largest consumer of the precious metal, often give each other gifts of gold for holidays including Diwali, the Hindu festival of lights, which will be celebrated in October.

Platinum, Palladium

Platinum prices rose, rebounding from a 3.3 percent drop last week, as the improved economic outlook fueled speculation that demand will rebound for the metal, which is used in pollution-control devices in vehicles.

The global economy will start growing next year, John Lipsky, the International Monetary Fund’s first deputy managing director, said today. Confidence in the global economy has risen to the highest in 19 months, a worldwide survey of Bloomberg users showed last week.

Platinum futures for July delivery climbed $28.60, or 2.6 percent, to $1,137.60 an ounce on the New York Mercantile Exchange. That marks the biggest gain on a most-active contract since April 13.

Palladium futures for June delivery rose $3.05, or 1.3 percent, to $230 an ounce in New York. The price dropped 6.3 percent last week.