Gold Drops on Speculation Dollar Will Strengthen, Erode Demand

Dec. 29 (Bloomberg) -- Gold prices fell, ending a three- session rally, on speculation that gains by the dollar will curb demand for the metal as a hedge against weakness in the currency.

The greenback climbed to a two-month high against the yen after reports showed confidence among U.S. consumers increased in December for a second month, and home prices in 20 major U.S. cities rose in October, the fifth straight gain. Gold futures reached a record $1,227.50 an ounce on Dec. 3 as the dollar traded at a 15-month low against a basket of six currencies.

“The whole key to the gold market is the dollar,” said Marty McNeill, an R.F. Lafferty Inc. trader in New York. “We could have some strength in the dollar going into the new year.”

Gold futures for February delivery fell $9.80, or 0.9 percent, to $1,098.10 an ounce on the New York Mercantile Exchange’s Comex unit. The most-active contract rose 2 percent in the previous three sessions.

In London, bullion for immediate delivery slipped $9.03, or 0.8 percent, to $1,098.27 an ounce at 7:26 p.m. local time.

Some investors also sold the metal to capture gains for the year, analysts said. Gold, up 24 percent in 2009, is headed for the first monthly decline since August.

“Investors have been booking profits on gold this whole month,” McNeill said.

Bullion has almost quadrupled in this decade, rising from $289.60 on Dec. 30, 1999. Gold probably will extend gains for a 10th year on concern that inflation will pick up and weaken the dollar, according to this year’s most-accurate forecaster.

Rates Pressure Dollar

“As long as we see a zero-interest-rate policy in the U.S. and the probability of continued big fiscal deficit, the dollar is going to be under pressure again,” said Philip Klapwijk, the chairman of GFMS Ltd., a London-based research company. Klapwijk in January predicted spot gold in London would average $970 an ounce this year. It has averaged $973.09.

Also in New York, silver for March delivery slid 45 cents, or 2.6 percent, to $17.11 an ounce. The metal, up 51 percent in 2009, has more than doubled from $5.453 on Dec. 30, 1999.

April platinum fell $13.70, or 0.9 percent, to $1,476 an ounce. The most-active contract is up 57 percent this year and has tripled from its Dec. 30, 1999, price of $422.20.

March palladium was unchanged at $388.85 an ounce. The most-active contract has doubled this year and fallen 13 percent from $449.20 at the close of 1999.