Gold Falls as Dollar’s Rebound Erodes Demand for Alternative

Oct. 26 (Bloomberg) -- Gold fell the most in more than a week after the dollar rebounded, eroding the appeal of the precious metal as an alternative asset. Silver posted the biggest decline in a month.

The greenback rose as much as 0.8 percent against a basket of six major currencies after dropping as much as 0.4 percent earlier. Gold, which typically moves inversely to the U.S. currency, climbed to a record $1,072 an ounce on Oct. 14.

“It’s all predicated on the dollar,” said Marty McNeill, a trader at R.F. Lafferty Inc. in New York. “If the dollar rallies, gold can see some downside.”

Gold futures for December delivery fell $13.60, or 1.3 percent, to $1,042.80 on the Comex division of the New York Mercantile Exchange, the biggest decline for a most-active contract since Oct. 15.

The metal had gained for four straight weeks, while the dollar dropped for three consecutive weeks against the currency basket.

“A lot of people are looking at the performance of the dollar,” said Afshin Nabavi, a senior vice president at bullion refiner MKS Finance SA in Geneva. “Traders are likely to buy on dips.”

Silver futures for December delivery fell 62.8 cents, or 3.5 percent, to $17.095 an ounce on the Comex, the biggest decline since Sept. 24.

Gold has gained 18 percent in 2009, while the dollar dropped 6.5 percent. Silver jumped 51 percent.

Silver Forecast

Silver may rise to $20 next year as some investors seek a cheaper alternative to gold, Bank of America-Merrill Lynch said today in a report.

“The steady increase of investment in silver was heavily influenced by increases in gold prices during the past few months,” according to the report. “Given that silver is cheaper than gold, market participants can substitute into the less-expensive alternative.”

Platinum for January delivery dropped $23.70, or 1.7 percent, to $1,345.80 an ounce on the Nymex, and palladium for December delivery declined $6.20, or 1.8 percent, to $333.25 an ounce.