Gold May Fall as Some Investors Sell Following Climb to Near-Record Price

Gold may decline in New York on sales by some investors after the precious metal climbed near a record over concerns that Europe’s debt crisis will sap the region’s economic recovery and weaken its 16-nation currency.

Bullion earlier advanced to within 0.6 percent of a record set last week. The euro declined to the lowest level in more than four years against the dollar as euro-area finance ministers meet in Brussels today. Holdings in the world’s biggest gold-backed exchange-traded fund rose to an all-time high, as did bullion’s price in euros, pounds and Swiss francs.

“There’s been a bit of profit-taking,” said Afshin Nabavi, a senior vice president at bullion refiner MKS Finance SA in Geneva. Still, “investment demand is still very much in the market. The market is still very nervous about the euro.”

Gold futures for June delivery gained $1.50, or 0.1 percent, to $1,229.30 an ounce at 8:26 a.m. on the Comex in New York after earlier reaching $1,242.80. The metal touched a record $1,249.70 on May 14. Bullion for immediate delivery in London was 0.2 percent lower at $1,230.25.

“Given the push to record levels and increase in scrap sales in some centers, the metal is vulnerable” to selling as some investors free up cash, James Moore, an analyst at TheBullionDesk.com in London, said in a report. “Investors are concerned about the effects of debt contagion and as a result will continue to diversify toward safe-haven assets.”

Bullion fell to $1,230.25 an ounce in the morning “fixing” in London, used by some mining companies to sell production, from $1,236.50 at the afternoon fixing on May 14. Spot prices have gained in eight of the last nine weeks.

Loan Package

Prices are up 12 percent this year and are set for their 10th annual gain, the longest winning streak since at least 1920. European finance ministers a week ago agreed to an unprecedented loan package worth almost $1 trillion and a program of bond purchases to support debt-laden governments.

Greece will receive the first installment of emergency European Union loans tomorrow, one day before 8.5 billion euros ($10.5 billion) of bonds come due, a Finance Ministry official who declined to be identified said today by phone.

Gold climbed to a record 1,013.078 euros an ounce, 869.4163 British pounds and 1,419.016 Swiss francs today. The metal generally has moved inversely to the dollar. Gold and the U.S. Dollar Index, a six-currency gauge of the greenback’s strength, gained the previous four weeks and both climbed for a second straight quarter in the first three months of 2010.

‘Inflationary Pressures’

“With both the Federal Reserve and the European Central Bank pumping billions of dollars and euros into their respective banking systems, there is justifiable concern about the viability of paper currency and looming inflationary pressures,” Edward Meir, senior commodity analyst with MF Global Holdings Ltd., wrote in a report. Gold may top $1,400 an ounce this year, he said.

Holdings in the SPDR Gold Trust, the biggest ETF backed by bullion, are at an all-time high and exceed those of Switzerland’s central bank. The fund’s assets increased 4.57 metric tons on May 14 to 1,214.06 tons, its website showed.

Russia’s central bank bought 142.9 tons of gold last year, raising its holdings of the metal by 29 percent to 637.6 tons, RIA Novosti reported, citing Bank Rossii’s annual report submitted to parliament.

Hedge-fund managers and other large speculators increased their net-long positions in New York gold futures by 2 percent in the week ended May 11, according to U.S. Commodity Futures Trading Commission data.

“Gold prices remain constructive and we continue to like it,” Tim Wilson, Singapore-based head of Asia corporate sales with JPMorgan Chase & Co., said in an interview on May 14. “What we have seen are people making higher allocations in their portfolios over time. The trend will continue.”

Platinum for July delivery in New York fell 0.8 percent to $1,701 an ounce. Palladium for June delivery dropped 2.5 percent to $514.90 an ounce. Silver for July delivery slipped 0.8 percent to $19.08 an ounce.

To contact the reporters on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net; Nicholas Larkin in London at nlarkin1@bloomberg.net.

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