Gold Falls as Speculative Holdings Reach Record, Dollar Climbs

Sept. 14 (Bloomberg) -- Gold fell from an 18-month high on speculation that investors may begin selling out of long positions, which climbed to a record last week, and the dollar strengthened, halting a six-session slide. Silver also declined.

Some investors buy metals, including gold, as an alternative investment. Hedge-fund managers and other large speculators increased their net-long position in New York gold futures by 22 percent to 224,676 contracts in the week ended Sept. 8, U.S. Commodity Futures Trading Commission data show. The dollar gained as much as 0.6 percent against a basket of six major currencies.

“All the talk is that Comex gold net longs are extremely high and longs should start liquidating,” Miguel Perez- Santalla, a Heraeus Precious Metals Management sales vice president in New York, said by e-mail.

Gold futures for December delivery slid $5.30, or 0.5 percent, to $1,001.10 an ounce on the New York Mercantile Exchange’s Comex division. The metal added 1 percent last week, the fourth consecutive gain.

“We are concerned by very large speculative long positions held on Comex,” John Reade, UBS AG’s head metals strategist in London, said today in a note. “We recommend that nimble investors take profit in gold and silver at current levels and look to re-enter the market” at lower prices.

Rising Long Positions

Speculative long positions, or bets on rising prices, have climbed for three straight weeks on the Comex, the Washington- based commission said on Sept. 11.

Citing a “bearish” outlook for the dollar, David Wilson and Stephanie Aymes, Societe Generale analysts in London, said they “continue to be bullish on gold on positive fund flows,” in a report today. They said they are “modestly bullish on silver,” also because of fund flows.

Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, were unchanged at 1,077.63 metric tons as of Sept. 11, the company’s Web site shows. ETF Securities Ltd.’s Web site shows gold held by its funds gained 0.7 percent to a record 8.217 million ounces on Sept. 11.

Gold for immediate delivery fell $6.03, or 0.6 percent, to $999.17 an ounce at 6:40 p.m. in London. Spot prices, which reached a record $1,032.70 an ounce in March 2008, may climb to $1,050 this year as a weaker dollar boosts demand, Bank of America Securities-Merrill Lynch said in a report dated Sept. 11.

Dollar’s Role

“We expect the dollar to play a heavy hand in the metal’s direction, with gold vulnerable to sharp correction should safe- haven interest return to the greenback,” James Moore, an analyst at TheBullionDesk.com in London, said in a report.

The U.S. Dollar Index, the six-currency gauge of the greenback’s strength, slid to an 11-month low on Sept. 11. Gold futures, which reached $1,013.70 an ounce on Sept. 11, the highest price since March 2008 in New York, typically decline when the dollar strengthens.

Crude oil fell for a second session in New York as U.S. fuel stockpiles grew. Some investors use oil prices as an inflation guide, and buy gold as a hedge against higher prices.

“This week will be crucial in determining whether speculators can keep gold prices underpinned without the temptation to book profits,” Andrey Kryuchenkov, a VTB Capital analyst in London, wrote today in a note. “A reversal in the dollar sell-off trend would see severe profit-taking and intensive unwinding in speculative gold positions.”

Silver Drops

Silver futures for December delivery declined 7.7 cents, or 0.5 percent, to $16.623 an ounce in New York. The most-active contract reached a 13-month high of $17.015 on Sept. 11.

Platinum futures for October delivery declined $1 to $1,319.70 an ounce. The most-active contract reached $1,328 on Sept. 11, the highest price in a year. Palladium for December delivery gained $1.25, or 0.4 percent, to $295.75 an ounce in New York.

ETF Securities’ silver holdings rose 1 percent to a record 20.728 million ounces on Sept. 11, while palladium assets climbed 1.4 percent to an all-time high 489,942 ounces.