Gold Declines as Dollar Rebounds Against Euro; Silver Gains

Jan. 2 (Bloomberg) -- Gold fell as the dollar climbed against the euro, eroding the appeal of the precious metal as an alternative investment. Silver and platinum futures rose.

The euro slid after a report on European manufacturing indicated the recession is deepening in the 16-nation region, signaling that the European Central Bank may cut borrowing costs to stimulate the economy. Gold and other commodities often move in the opposite direction of the dollar. In 2008, gold gained 5.5 percent, the smallest increase since 2004, as the dollar climbed for the first time in three years against the euro.

“The dollar is a little stronger, which was an additional weight that gold is fighting against,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago.

Gold futures for February delivery dropped $4.80, or 0.5 percent, to $879.50 an ounce on the Comex division of New York Mercantile Exchange. The metal still climbed almost 1 percent this week.

The ECB’s benchmark interest rate is 2.5 percent, while the U.S. federal-funds rate is zero to 0.25 percent. Simultaneous recessions in the U.S., Japan and Europe have forced central banks worldwide to cut borrowing costs to stimulate growth.

Gold followed fluctuations in energy costs. The metal pared losses as crude oil jumped as much as 4.8 percent following an 8 percent drop. Tensions mounted in the Middle East between Israel and Iran-backed Hamas.

‘Tracking Oil’

Israeli warplanes and naval vessels hit more than 20 targets in Gaza overnight, including a mosque and a refugee camp that the country claimed was being used to store weapons.

“Gold is tracking oil,” McGhee said. “Tensions in the Middle East are starting to come back into the trading psyche.”

Still, a global recession may damp demand for the precious metal. Gold imports by India, the world’s biggest buyer, fell for a second straight month in December, according to the Bombay Bullion Association Ltd.

Purchases fell to about 3 metric tons from 16 tons a year earlier, the group of traders reported.

“Unless gold can bank on investment demand to more than offset the slump in Indian purchase tonnages, we must remain on alert and exercise caution,” said Jon Nadler, a senior analyst at Kitco Inc. in Montreal. “Demand destruction of this type is not beneficial.”

Silver, platinum and palladium, which all had annual losses in 2008, gained as a rally in equities heightened speculation that demand for industrial metals will rebound.

Stocks Rally

“You’re seeing some catch-up from other precious metals,” McGhee said. “A stock-market rally is helping other precious metals, which are more industrial than gold.”

Silver futures for March delivery rose 19.5 cents, or 1.7 percent, to $11.49 an ounce. This week, the price gained 9.1 percent, the most since mid-September. The metal dropped 24 percent in 2008.

Platinum futures for April delivery climbed $5.20, or 0.6 percent, to $946.70 an ounce on the Nymex. The price climbed 5.8 percent this week.

Palladium futures for March delivery rose $3.60, or 1.9 percent, to $192.30 an ounce. This week, the price jumped 9.3 percent, the most since early November.

Palladium plunged 50 percent in 2008, while platinum declined 38 percent.

The Standard & Poor’s 500 Index climbed as much as 2.6 percent today.

Oil Caps Biggest Weekly Gain Since 1986 on Geopolitical Concern

Jan. 2 (Bloomberg) -- Crude oil rose, capping the biggest weekly gain since 1986, as the conflict in Gaza increased concern that Middle East supplies would be cut and Russia curbed natural- gas shipments to Ukraine.

Israeli warplanes conducted fresh attacks against Hamas on the seventh day of a bombing campaign in the Gaza Strip, raising the prospect of violence in the region, source of one-third of the world’s oil. Russia’s dispute with Ukraine over natural-gas prices deepened after no new talks were scheduled. Oil futures have traded in a range of more than $5 a barrel today.

“A lot of the volatility we are seeing is a result of the wild geopolitical news,” said Michael Lynch, president of Strategic Energy & Economic Research, in Winchester, Massachusetts. “The news from Gaza and Ukraine scares some people and not others.”

Crude oil for February delivery rose $1.74, or 3.9 percent, to $46.34 a barrel at 2:52 p.m. on the New York Mercantile Exchange, the highest settlement since Dec. 11. Prices climbed 23 percent this week, the most since August 1986. Oil prices tumbled 27 percent in the week ended Dec. 19, the biggest decline since trading began in 1983.

Oil fell 54 percent last year, the first annual drop since 2001 when crude slipped 26 percent, and the biggest loss since trading started.

Israel struck at least 35 targets in the Gaza Strip and Hamas militants launched more rockets today as hopes for a truce dimmed. Oil surged in 1974, helping spur a recession in the developed world, after an oil embargo that followed the Arab- Israeli war in October 1973.

OAO Gazprom boosted gas supplies to Europe through Belarus, avoiding Ukrainian pipelines. Talks between the two sides on the price of gas deliveries to Ukraine for 2009 and transit fees for Russian gas to Europe through the country broke down on Dec. 31, and Gazprom cut supplies of the fuel to Ukraine yesterday.

Stocks Rally

Agricultural futures also rose and equities rallied on speculation that government stimulus efforts will curtail the recession. The Dow Jones Industrial Average increased 258.3 points, or 2.9 percent, to 9,034.69. The Standard & Poor’s 500 Index rose 28.54 points, or 3.2 percent, to 931.79.

“Equities and commodities are tracking each other,” said Bill O’Grady, chief markets strategist at Confluence Investment Management in St. Louis. “The outsized moves we are seeing are in part due to very thin trading volume.”

Commodity prices may be more volatile this week because many traders are taking time off for the New Year’s holiday.

Volume in electronic trading on the exchange was 255,932 contracts as of 3:10 p.m. in New York. Volume totaled 357,359 contracts on Dec. 31, down 24 percent from the average over the past 3 months.

$60 Oil

Oil may rebound this year to average $60 a barrel as the Organization of Petroleum Exporting Countries makes record production cuts to counter the deepest economic slump since World War II, according to the median of estimates by 33 analysts surveyed by Bloomberg News. That would be a 29 percent gain from today’s price.

OPEC will cut daily shipments of crude oil by 1 percent in the four weeks to Jan. 17 as the group enacts supply reductions, according to industry consultant Oil Movements. Members will load 23.75 million barrels a day in the period, down from 24 million in the four weeks ended Dec. 20, the Halifax, England-based company that tracks oil shipments said.

Brent crude oil for February settlement climbed $1.32, or 2.9 percent, to settle at $46.91 a barrel on London’s ICE Futures Europe exchange.

Houston Ship Channel

The Houston Ship Channel, which serves the largest U.S. petroleum port, is closed to tankers and other large vessels because of fog at the mouth of Galveston Bay, the U.S. Coast Guard said. Pilots who guide vessels stopped operations at 10:05 p.m. local time yesterday for safety reasons, Coast Guard spokesman Martin Montes said today in a telephone interview.

The area’s eight refineries have a combined processing capacity of 2.22 million barrels a day, which represents 13 percent of the U.S. total, according to their owners and the National Petrochemical and Refiners Association.

“The closure of the Houston Ship Channel at the end of this week is a sign that we will see a drop in crude-oil supplies in next week’s inventory report,” Strategic Energy’s Lynch said.

The Energy Departments will release its weekly petroleum supply report at 10:30 a.m. in Washington on Jan. 7.

Gasoline futures for February delivery climbed 4.85 cents, or 4.6 percent, to $1.1105 a gallon in New York. Heating oil for February delivery increased 3.82 cents, or 2.6 percent, to $1.4803 a gallon.

Regular gasoline at the pump, averaged nationwide, rose 0.8 cent to $1.626 a gallon, AAA, the largest U.S. motorist organization, said on its Web site today. The fuel has dropped 60 percent from the record $4.114 a gallon reached on July 17.