Gold Declines to 6-Week Low in London as Crude Oil Drops and Dollar Gains
June 8 (Bloomberg) -- Gold declined in London to the lowest in six weeks as crude oil prices fell below $70 a barrel and the dollar strengthened, eroding the appeal of the precious metal as an alternative investment. Palladium fell 5.6 percent.
Gold has gained 20 percent this year as oil climbed 16 percent. Oil today declined on reports that Abu Musab al-Zarqawi, the leader of al-Qaeda in Iraq, had been killed in Baghdad. Gold also fell for the fourth day as the dollar gained against the euro on expectations the Federal Reserve will continue to raise its benchmark interest rate later this month.
``Dollar strength and lower oil prices both have a part to play,'' in pushing gold lower, said John Meyer, an analyst at Numis Securities Ltd. in London.
Gold for immediate delivery fell $7.90, or 1.3 percent, to $618.55 an ounce at 11:50 a.m. in London, after earlier dropping to $616.93, the lowest since April 20.
Bullion, unlike other assets such as bonds, doesn't bear interest and the price of the metal traditionally moves inversely to the dollar.
That relationship changed last year when gold gained 18 percent even as the dollar rose about 14 percent against the euro.
``Left to its own devices gold should trade between $620 and $640,'' said Simon Weeks, head of precious-metals trading at ScotiaMocatta in London in an interview today. Still, ``it depends on people's view of the economic picture, if we have inflation problem, it could be attractive to people looking for hard assets.''
Gold Haven
Bullion is often purchased as a haven in times of political uncertainty as and a hedge against inflation. Concern about possible sanctions against Iran, which is the world's fourth- largest oil producer, helped send oil prices to a record in April.
South Africa, the world's biggest producer of precious metals and ferroalloys, today said gold output rose an annual 4.5 percent in April. AngloGold Ashanti Ltd., Gold Fields Ltd. and Harmony Gold Mining Co., three of the world's six largest gold producers, are based in Johannesburg.
Silver for immediate delivery fell as much as 31 cents, or 2.6 percent, to $11.57 an ounce in London, the lowest price in more than two months. The precious metal traded at $11.58 an ounce at 11.53 a.m. local time.
Palladium fell $19, or 5.6 percent, to $319 an ounce, its lowest level March 21. It earlier dropped as low as $316.
Palladium, which had a record residual surplus last year because of stockpile sales, will continue to exceed demand this year on lower jewelry demand and inventory sales by Russia, GFMS Ltd., a precious metal researcher in London, said April 25. Palladium supply has exceeded demand since 2001.
``Palladium has the potential to trigger a dip back to $300,'' said James Moore, an analyst for the Bulliondesk.com in Kettering, U.K.
To contact the reporter on this story:
Julie Tay in London at jtay1@bloomberg.net
Last Updated: June 8, 2006 06:59 EDT