By Pham-Duy Nguyen - May 12, 2011 6:17 AM GMT+1200
Gold fell in New York, halting a three-session rally, as a stronger dollar eroded the appeal of the precious metal as an alternative asset. Silver also declined.
The dollar rose against the euro on speculation that European leaders may not grant Greece additional aid, forcing the nation to restructure its debt. Gold touched a record $1,577.40 an ounce on May 2 before dropping 4.2 percent last week as the greenback climbed.
“The correction in the dollar will have more room on the upside, and that’s going to pressure precious metals,” said Matt Zeman, a strategist at Kingsview Financial in Chicago. “Too many people were short the dollar and long gold. There will be additional unwinding of that trade.”
Gold futures for June delivery fell $15.50, or 1 percent, to settle at $1,501.40 at 1:49 p.m. on the Comex in New York. The metal has gained 23 percent in the past year.
The euro has dropped 2.5 percent in a measure of 10 developed-nation currencies since May 4, the day before European Central Bank President Jean-Claude Trichet signaled the bank may wait until after June to raise borrowing costs again, according to Bloomberg Correlation-Weighted Currency Indexes. The bank raised the main interest rate 25 basis points to 1.25 percent in April.
“The falling euro is going to drag gold down with it,” said Zeman of Kingsview.
Gold Trust Holdings
Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, were unchanged yesterday at 1,201.95 metric tons, after declining 2 percent last week. The last gain in holdings was April 15.
“We would’ve expected that they’d have risen a bit in the last day or two, given the sharp bounce” in gold prices, said Dennis Gartman, an economist and the editor of the Suffolk, Virginia-based Gartman Letter. “That suggests to us that the worst of the liquidation is not yet over.”
Gartman has recommended holding gold in other currencies to hedge against the relative strength of the dollar.
Silver, which has wider industrial applications than gold, also fell on speculation that China will raise interest rates to stem inflation. The Asian nation’s consumer prices rose 5.3 percent in April, the statistics bureau said today in Beijing. The country’s target inflation rate is 4 percent for this year.
“There’s chatter about China raising rates to curb growth, and that’s made copper and silver vulnerable,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago.
Silver futures for July delivery fell $2.971, or 7.7 percent, to $35.515 an ounce on the Comex. The metal gained 9.1 percent in the previous two days after shedding 27 percent last week.
Palladium futures for June delivery declined $17.25, or 2.4 percent, to $715.40 an ounce on the New York Mercantile Exchange. Platinum futures for July delivery dropped $23.10, or 1.3 percent, to $1,777.80 an ounce on the Nymex.
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