Gold, Silver Fall on Signs Recession May Be Nearing Bottom

June 18 (Bloomberg) -- Gold fell on speculation that a stronger dollar and an improving U.S. economy will reduce the metal’s investment appeal. Silver also declined.

The U.S. Dollar Index, a six-currency gauge of the greenback’s value, gained as much as 0.8 percent. Gold typically moves inversely to the currency. The index of U.S. leading economic indicators rose 1.2 percent in the six months through May, adding to signs that the worst recession in five decades may end this year.

“We have hit bottom for now, so we should see a strengthening dollar and weaker gold,” said Miguel Perez- Santalla, a Heraeus Precious Metals Management sales vice president in New York.

Gold futures for August delivery slipped $1.40, or 0.1 percent, to $934.60 an ounce on the New York Mercantile Exchange’s Comex division. Bullion for immediate delivery slipped $5.02, or 0.5 percent, to $933.85 at 8:23 p.m. in London.

“Tactical investors have rapidly increased their exposure to gold over the past two months, and in turn this has supported the strengthening of the correlation between the dollar and gold,” Yingxi Yu, an analyst at Barclays Capital Plc, said in a note. “Our expectations for the dollar to strengthen over the forthcoming weeks are likely to weigh upon prices.”

Before today, the dollar index was up 2.3 percent from this year’s low of 78.334 on June 2, while it was still down 11 percent from a high of 89.624 on March 4.

Silver Declines

Silver for July delivery fell 4 cents, or 0.3 percent, to $14.24 an ounce in New York. Silver for immediate delivery slipped 11 cents, or 0.9 percent, to $14.225 an ounce in London.

“Silver prices are likely to fare worse as gold prices ease, given the hefty build in speculative interest and its weak fundamentals,” London-based analysts at Barclays Capital Plc, including Gayle Berry and Suki Cooper, said today in a report. “Beyond near-term weakness, firm jewelry demand emerging upon dips in the gold price should limit the downside below $900.”

Platinum futures for July delivery gained $2.40, or 0.2 percent, to $1,207.60 an ounce on the Nymex. Palladium futures for September delivery fell $3.35, or 1.4 percent, to $239.70 an ounce. Platinum has rallied 28 percent this year and palladium is up 27 percent.

“If the metals begin to tank, it will be platinum that will eventually hold best,” Perez-Santalla said in a note.

Some investors buy precious metals, including platinum, as a store of value at times of political instability, or as a hedge against inflation when the dollar falls and oil gains.

Iran Propels Oil

In Iran, the second-largest oil producer in the Organization of Petroleum Exporting Countries, former Prime Minister Mir Hossein Mousavi joined a rally in Tehran today to protest his defeat in a disputed presidential election on June 12, state-run Press TV said.

Oil prices “will hold up heading into the weekend in light of the very unsettled Iranian situation,” Edward Meir, an MF Global Ltd. analyst in Darien, Connecticut, said in a report. “The next shoe to drop would be for the opposition to call for national strikes. In such a case, oil prices would be much more responsive to the upside, and we could see spillover strength in metals as well, so certainly we would not want to get too short commodities over the short term.”

“At the moment, we don’t see an argument for increased investment flows,” Manqoba Madinane, an analyst at Standard Bank Group Ltd. in Johannesburg, said by telephone today.

Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, has remained unchanged at 1,132.15 metric tons since June 5, the company’s Web site showed.

“Dip-buying from both investors and physical players looks set to absorb further dollar-related profit taking,” James Moore, an analyst at TheBullionDesk.com in London, said today in a note. “We expect the metal to spend further time consolidating in the $920-$950 area.”