Gold Falls on Concern Obama Bank Plan May Erode Commodity Trade

Jan. 22 (Bloomberg) -- Gold futures dropped to a one-month low on speculation that President Barack Obama’s plan to restrict U.S. bank trading will reduce investment demand for commodities, including precious metals.

The proposal to limit risk-taking by banks, preventing investments in hedge funds and private equity pools, may cost Goldman Sachs Group Inc. $4.67 billion in revenue next year, JPMorgan Chase & Co. said in a report. Investors poured $60 billion into raw materials in 2009, according to a Barclays Capital survey, fueling the biggest commodity rally since 1979.

“President Obama’s restrictions on bank trading could undermine the gold market, if it prevents investment from moving into risk markets,” said Tom Pawlicki, an MF Global Inc. analyst in Chicago. “Gold has correlated well with risk markets in the past year, and yesterday’s events sent investment into Treasuries rather than gold and stocks.”

Gold futures for February delivery dropped $13.50, or 1.2 percent, to $1,089.70 an ounce on the New York Mercantile Exchange’s Comex unit, dropping 3.6 percent this week.

Earlier, the most-active contract touched $1,081.90, the lowest price since Dec. 23. Gold fell for the third straight day, the longest slump in six weeks.

Last year, investment in the SPDR Gold Trust, the biggest exchange-traded fund backed by the metal, surged 45 percent to as much as 1,134 metric tons. The total value of the fund grew 85 percent to $40 billion. Gold futures jumped 24 percent in 2009, the ninth straight annual gain, touching a record of $1,227.50 last month in New York.

Less Trading

“You’re going to see a sharp reduction in trading volume, higher volatility and probably lower prices” should Obama’s plan pass Congress, said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois. “The banks were behind a lot of the fever. It wasn’t the small guy on the street taking commodities to extreme prices.”

UBS AG, based in Zurich, and JPMorgan were among the top 10 holders of the SPDR ETF at the end of the third quarter, according to corporate filings. New York-based JPMorgan is the second-biggest U.S. bank.

ETFs for platinum and palladium, which began trading in the U.S. for the first time on Jan. 8, also may shrink, analysts said.

ETF Securities Ltd.’s ETFS Platinum Trust and Palladium Trust brought in $350 million in the first trading session, the Jersey, Channel Islands-based company said.

Prices Fall

Platinum futures for April delivery plunged $47.60, or 3 percent, to $1,544.50 an ounce in New York, the biggest decline for a most-active contract since Aug. 17. The metal fell 3.2 percent this week.

March palladium futures tumbled $13.85, or 3.1 percent, to 440.10 an ounce, the biggest decline for a most-active contract since Dec. 22. The metal fell 1.7 percent this week, halting five weekly gains.

Silver for March delivery dropped 57.8 cents, or 3.3 percent, to $16.932 an ounce. The metal slid 8.1 percent this week, the biggest decline since the end of October.

Gold priced in dollars may rebound as Obama’s plan erodes the value of the greenback, said Dennis Gartman, a Suffolk, Virginia-based economist and the editor of the Gartman Letter.

“We are making a material shift in our sentiment toward gold this morning,” said Gartman, who previously advocated owning gold priced in foreign currencies to hedge against a rising dollar. “We now fear for the dollar, rather than cheer for it.”