Gold Falls, Capping First Weekly Drop Since July; Silver Sinks

Sept. 25 (Bloomberg) -- Gold fell, capping the biggest weekly decline since mid-July, as the metal’s failure to reach a record discouraged investors who had bet on a longer rally. Silver tumbled.

Gold traded below $1,000 for the second straight day after climbing to $1,025.80 on Sept. 17, near the all-time high of $1,033.90 set in March 2008. Silver sank the most in a week since February. Before today, silver surged 44 percent and gold rose 13 percent this year, heading for a ninth-straight annual gain.

“If I’m long gold, I’ve got to be pretty discouraged that gold couldn’t get anything going above $1,000,” said Matt Zeman, a LaSalle Futures Group metals trader in Chicago. “All these people who’ve piled into gold in the past few weeks are going to be running for the exits.”

Gold futures for December fell $7.30, or 0.7 percent, to $991.60 an ounce on the Comex division of the New York Mercantile Exchange. The metal lost 1.9 percent this week, the steepest decline for a most-active contract since July 10.

Before this week, speculators and index funds had never been so bullish. Since the start of the year, so-called net-long positions, or bets on rising gold futures, had almost doubled to a record 235,647 in the week ended Sept. 15, the U.S. Commodity Futures Trading Commission said on Sept. 18.

Gold has declined since Sept. 23, when policy makers at the Federal Reserve signaled they can control accelerating prices. The Fed kept its target lending rate at a record-low range of zero to 0.25 percent, where it has been since December.

“The bulls in the gold market have been trading on the belief that there will be inflation,” said Tom Hartmann, an AltaVest Worldwide Trading Inc. analyst in Mission Viejo, California. “The Fed took some air out of the market.”

Bullish Outlook

Fourteen of 21 traders, investors and analysts surveyed by Bloomberg, or 67 percent, said gold will rise next week. Five forecast lower prices, and two were neutral.

“There is still room for net-long positions to be built before the inevitable liquidation of positions takes the metal lower,” Deutsche Bank AG said in a report. “We continue to believe that gold fundamentals are attractive, given long-term inflation threats.”

In another New York market, silver futures for December delivery dropped 23.5 cents, or 1.4 percent, to $16.06 an ounce. The metal is down 5.9 percent this week, the biggest decline for a most-active contract since Feb. 27.