<b>Gold</b> Falls for First Time in 3 Days on Investor Sales, Dollar

October 12, 2010, 6:45 AM EDT By Nicholas Larkin and Wendy Pugh

Oct. 12 (Bloomberg) -- Gold declined for the first time in three days in London as a stronger dollar curbed demand for the metal as an alternative asset and as some investors sold bullion after its rally to a record.

The dollar gained as much as 0.7 percent against the euro today. Gold, which usually moves inversely to the greenback, reached a record $1,364.77 an ounce on Oct. 7. Bullion’s rally had driven the relative strength index above 70, a sign to some analysts and traders who study technical charts that prices may be poised to drop.

“The U.S. dollar is a bit stronger, which is a negative,” Peter Fertig, owner of Quantitative Commodity Research Ltd. in Hainburg, Germany, said today by phone. There may be “a bit of profit-taking,” and lower prices for other commodities are pressuring gold, he said.

Immediate-delivery bullion lost $11.35, or 0.8 percent, to $1,342.70 an ounce at 11:20 a.m. in London. Gold for December delivery was 0.8 percent lower at $1,343.40 an ounce on the Comex in New York.

Bullion fell to $1,343.50 an ounce in the morning “fixing” in London, used by some mining companies to sell output, from $1,351.50 at yesterday’s afternoon fixing. Five of the six main industrial metals on the London Metal Exchange and crude oil futures in New York declined today. Silver, platinum and palladium also fell.

Gold should account for 15 percent of a portfolio on a three-year view and 13 percent on a six-month view, Fredrik Nerbrand, global head of asset allocation at HSBC Bank Plc, said in a report today.

Winning Streak

The metal is “not merely a hedge against inflation but one of the few assets that hedges against tail risks,” Nerbrand said in “The Allocator” report. “The fact that gold is still under-owned and opportunity costs are still low should boost investor appetite further.”

Gold, up 23 percent this year, is heading for its 10th consecutive annual gain, the longest winning streak since at least 1920. Bullion has outperformed global equities, Treasuries and most industrial metals, prompting record investment in gold- backed exchange-traded products. The metal rallied as central banks and governments maintained low borrowing costs and spent trillions of dollars to stimulate economies.

“Gold has run so hard in the past couple of months that it was ready for a bit of a breather and we are just seeing a bit of consolidation,” said Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne. The movement in the dollar was likely a catalyst today for some weakness in the metal, he said.

Quantitative Easing

The dollar rose before the Federal Reserve releases today minutes of its policy meeting on Sept. 21, when the central bank said it’s willing to ease monetary policy further to bolster the economy. The Fed may next month announce about $500 billion of bond purchases as it undertakes further quantitative easing, Goldman Sachs Group Inc. said in an e-mailed note.

Gold assets in ETPs declined 1.22 metric tons to 2,083.55 tons yesterday, according to data compiled by Bloomberg from 10 providers. Holdings reached a record 2,097.01 tons on Sept. 30 and are up 16 percent this year.

Prices may gain to $1,400 in three months, $1,525 in six months and $1,650 in 12 months, Goldman Sachs analysts David Greely and Damien Courvalin wrote in a report dated yesterday.

“With U.S. real interest rates pushing lower off the slowdown in the pace of the U.S. economic recovery and the growing prospect of another round of quantitative easing, we expect gold prices to continue to climb,” the New York-based analysts wrote.

Silver for immediate delivery in London fell 1.3 percent to $22.99 an ounce, after yesterday reaching $23.6325, the highest price since 1980.

Platinum lost 0.7 percent to $1,674.75 an ounce, and palladium declined 1.9 percent to $576.75 an ounce. The metal last week reached a nine-year high of $604.

--Editors: John Deane, Dan Weeks.

To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net; Wendy Pugh in Melbourne at wpugh@bloomberg.net.

To contact the editor responsible for this story: Carpenter at ccarpenter2@bloomberg.net.

View the original article here