Gold Drops as Dollar Gains on Demand for Haven Amid European Debt Concerns

Gold futures fell as the dollar’s rally eroded the appeal of the precious metal as an alternative investment.

The greenback rose for the sixth straight session against a basket of major currencies, including the euro, after the European Union said that Greece’s budget deficit was wider than forecast. Gold rose 24 percent in 2009 as the dollar fell 4.2 percent.

“You’re seeing a major sell-off in all risky assets,” said Adam Klopfenstein, a senior market strategist at Lind- Waldock, a broker in Chicago. “There are more questions coming out of Greece and people are more comfortable going to flight- to-quality currencies like the dollar instead of gold.”

Gold futures for delivery in June fell $5.90, or 0.5 percent, to $1,142.90 an ounce on the Comex in New York, halting a two-day advance.

Equities in Europe, Asia and the U.S. fell and the cost of insuring Greek debt soared to a record.

“There’s risk aversion with Greece going back and forth on how much they need to be bailed out,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. “Strength is coming into the dollar, and gold is reacting to the dollar in its traditional relationship.”

Gold’s losses were limited as some investors bought the metal as an alternative to the euro, analysts said. Gold priced in the 16-nation currency climbed to a record on April 9.

Haven Demand

“People are saying, ‘If Greece is in trouble, we don’t want to buy euros anymore,’” said David Thurtell, an analyst at Citigroup Inc. in London. “People have been going out of euros and into gold.”

Silver futures for May delivery fell 6.9 cents, or 0.4 percent, to $18.009 an ounce on the Comex, snapping a three-day rally.

Platinum futures for July delivery rose $3.90, or 0.2 percent, to $1,744.20 an ounce on the New York Mercantile Exchange. Palladium for June delivery declined $3.15, or 0.6 percent, to $565.10 an ounce.

Platinum may rise to $1,900 this year, and palladium may climb to $675 on demand for the metals used in pollution-control devices in cars, said GFMS Ltd., a London-based research company.

To contact the reporters on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net; Claudia Carpenter in London at ccarpenter2@bloomberg.net.