Gold Falls, Capping First Weekly Loss in Five, as Dollar Gains

Oct. 30 (Bloomberg) -- Gold fell, capping the first weekly loss since late last month, as a strengthening U.S. dollar cut demand for the precious metal as an alternative asset.

Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, slipped 0.3 percent this week as the dollar rebounded from a 14-month low against the euro. Gold reached a record $1,072 an ounce on Oct. 14.

“If it appears that the dollar can strengthen, it can lead stocks down, and gold is going to slip,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. The Standard & Poor’s 500 Index fell as much as 3.1 percent, heading for the steepest drop in almost four months.

Gold futures for December delivery fell $6.70, or 0.6 percent, to $1,040.40 an ounce on the New York Mercantile Exchange’s Comex division.

The metal sank 1.5 percent this week as the U.S. Dollar Index, a six-currency measure of the greenback’s value, rose 1.1 percent. The last time gold posted a weekly loss was Sept. 25.

The dollar rallied after U.S. business activity expanded in October, according to the Institute for Supply Management- Chicago Inc. The group said its gauge of activity rose to 54.2 in October, a 13-month high, from 46.1 last month. The median forecast of 58 economists in a Bloomberg survey was for an advance to 49. Readings below 50 signal contraction.

Following the Dollar

“Gold is just following moves in the dollar,” McGhee said. Today’s decline “could bode poorly for next week,” he said.

Thirteen of 23 traders, investors and analysts surveyed by Bloomberg, or 57 percent, said bullion will fall next week. Seven forecast higher prices and three were neutral.

Gold climbed 3.1 percent this month, the second straight gain. The drop in prices this week may be a buying opportunity, some analysts said.

“The gold price had become increasingly vulnerable to a pocket of U.S. dollar strength during October,” analysts at Deutsche Bank AG said today in a report. “The latest correction in the gold price provides another opportunity to build long exposure.”

The bank expects gold to average $1,150 in 2010.

Gold will be higher in six months as investors worldwide turn to the precious metal to preserve wealth, said Dennis Gartman, an economist in Suffolk, Virginia. Gartman is also a hedge-fund manager and the editor of the Gartman Letter.

“Great bull markets in gold are not just predicated in dollar weakness; great bull markets in gold are predicated in monetary policies going awry everywhere,” Gartman said in a Bloomberg Television interview. “Gold has become, for all intents and purposes, the second or third reservable asset, and I think that’s what is taking it higher.”

Annual Gains

Gold is headed for a ninth straight annual gain. The metal also reached record values in euros and U.K. pounds earlier this year.

In other metals markets, silver futures for December delivery dropped 40 cents, or 2.4 percent, to $16.255 an ounce on the Comex. The metal slid 8.3 percent this week.

Platinum for January delivery fell $11.90, or 0.9 percent, to $1,326.30 an ounce on the Nymex, and December palladium sank $5.05, or 1.5 percent, to $323.25 an ounce. Platinum declined 3.2 percent this week and palladium fell 4.8 percent.

“A less-euphoric outlook to global growth may help explain why the price declines in silver and platinum have been more severe than gold over the past week,” Deutsche Bank analysts said.

Silver fell the most in a week since February while platinum’s weekly loss was the most since late September. This month, silver declined 2.4 percent, while platinum has rallied 1.8 percent and palladium surged 8 percent. All three metals have wider industrial applications than gold.