Gold Drops After Rally to Record Spurs Sales by Some Investors

Oct. 14 (Bloomberg) -- Gold prices declined in New York after a rally to a record spurred some investors to sell the precious metal.

The 14-day relative-strength index for gold futures was above 70 for the third straight day, a signal that prices may retreat in the short term. Gold reached the all-time high of $1,072 an ounce as the dollar slumped to a 14-month low against a basket of six major currencies. The metal has closed above $1,000 every session this month.

“Given the scale and pace of recent gains and with gold flirting with overbought territory on the charts, the metal is in much need of consolidation/correction to avoid a more substantial price drop,” James Moore, an analyst at TheBullionDesk.com in London, said in a note. “Given the weight of momentum entering the market and outlook for the dollar, it is difficult to be anything but bullish.”

Gold futures for December delivery fell 30 cents to $1,064.70 an ounce on the Comex division. Earlier, the price dropped as much as 0.8 percent.

The metal has gained 20 percent this year, heading for a ninth straight annual gain, while the dollar has dropped 7.1 percent versus the currency basket. Federal Reserve Vice Chairman Donald Kohn said interest rates would remain low for an “extended period.”

‘Bull Market’

“Be very careful about shorting gold in a bull market,” said Ron Goodis, a retail trading director at Equidex Brokerage Group Inc. in Closter, New Jersey. “I’ve thrown in the towel on the dollar turning around and driving commodities down.”

President Barack Obama has increased U.S. marketable debt to a record as he borrows to reignite growth in the world’s biggest economy. Speculation has mounted that the increasing money supply will debase the currency and spur inflation. The Reuters/Jefferies CRB Index of 19 raw materials rose to an 11- month high today.

The Federal Reserve has cut its main interest rate almost to zero and backed asset purchases and credit programs to combat the recession. Chairman Ben S. Bernanke is leading plans to buy mortgage-backed securities, federal agency debt and Treasuries.

“A weakening dollar and easy liquidity conditions will particularly favor precious metals,” Morgan Stanley said in a report. “We expect prices of gold, silver and platinum all to register further gains over the next year.”

Silver futures for December delivery rose 6.8 cents, or 0.4 percent, to $17.908 an ounce. Earlier, the price reached $18.175, the highest for a most-active contract since July 2008. The metal is up 59 percent this year.