Gold Futures May Drop in New York as Economic Recovery Erodes More Demand

Gold futures may decline in New York on speculation economic growth will erode demand for the precious metal as an alternative asset.

Federal Reserve officials today may indicate the U.S. recovery is strengthening. Gold rose to a four-month high yesterday after Standard & Poor’s lowered Greece’s and Portugal’s credit ratings, spurring demand for the metal.

“In the short term, there may be safe-haven buying, but I don’t think that will be as important in the weeks ahead,” said Daniel Smith, an analyst at Standard Chartered Plc in London. “The Greece issue won’t derail economic recovery.”

Gold futures for June delivery were little changed at $1,162.50 an ounce at 8:29 a.m. on the Comex in New York. The metal for immediate delivery dropped 0.5 percent to $1,161.80.

Goldman Sachs Group Inc. said it reduced its gold forecasts because of expectations that a “broadening economic recovery” will lead to higher U.S. interest rates.

Gold will average $1,165 an ounce this year and $1,350 in 2011, Eugene King, Peter Mallin-Jones and Andrew Byrne said in a report dated yesterday. In January, the company’s forecasts were $1,265 an ounce for 2010 and $1,425 an ounce for 2011.

The dollar fell against the euro. Gold usually moves in the opposite direction to the dollar.

The Federal Open Market Committee plans to issue a policy statement at around 2:15 p.m. today in Washington. The morning “fixing” of gold, the price used by some mining companies to sell production, rose to $1,164.25 an ounce from $1,149.50 at yesterday’s afternoon fixing.

Inflation Focus

“I do think we hold off until after the Fed,” said Michael Guido, director of hedge fund sales at Macquarie Bank Ltd. in New York. The Fed’s “continued text of low rates for an extended period of time should support gold.”

Prices of gold may be supported as investors switch focus from economic recovery to inflation, Smith said. In a study going back to 1983, Standard Chartered found that gold rallied an average 18 percent in the months before the Fed’s first rate increase after a downturn.

Gold holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, expanded for a second day to a record 1,146.83 metric tons yesterday, according to figures on the company’s Web site. Gold assets in exchange-traded products of ETF Securities Ltd. in London and Zurich rose 0.4 percent yesterday to 7.68 million ounces, according to information on the company’s Web site. All of the gain was in London, according to the company.

Silver for July delivery fell 1.2 percent to $17.935 an ounce, platinum dropped 0.4 percent to $1,713.40 an ounce and palladium declined 1.1 percent to $543 an ounce.

To contact the reporters on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net; Glenys Sim in Singapore at gsim4@bloomberg.net.

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