Gold May Fall for Second Day in New York as Investors Sell Following Rally

Gold, little changed in New York trading, may decline for a second day as some investors sell the metal to lock in gains from this week’s rally to a record.

Bullion futures reached an all-time high of $1,266.50 an ounce on June 21, while holdings in exchange-traded funds backed by gold are at records. The Federal Reserve yesterday retained a pledge to keep the benchmark interest rate at a record low for an “extended period” and signaled that European indebtedness may harm American growth. European equities fell.

“There could be a bit of profit-taking,” said Afshin Nabavi, a senior vice president at bullion refiner MKS Finance SA in Geneva. “After making new highs early this week, it’s probable we could see a correction down to about the $1,220- $1,225 area. But with all the mess going on in the economy, one has to buy on dips.”

Gold futures for delivery in August lost $3.40, or 0.3 percent, to $1,231.40 an ounce at 8:04 a.m. on the Comex in New York. Gold for immediate delivery in London was 0.5 percent lower at $1,230.82.

Bullion rose to $1,233.25 an ounce in the morning “fixing” in London, used by some mining companies to sell output, from $1,226.50 at yesterday’s afternoon fixing.

Gold is heading for a weekly loss after advancing for four straight weeks as investors sought to protect their wealth amid the European sovereign-debt crisis. The metal is up 12 percent this year and is headed for a 10th consecutive annual gain, the longest winning streak since at least 1920.

The Fed said that falling prices for energy and other commodities were undercutting inflation.

Weakness May ‘Bleed’

The Stoxx Europe 600 Index of equities declined for a third day, falling as much as 1.1 percent. The index has declined 7.5 percent from this year’s high on April 15 even after the European Union last month unveiled a 750 billion-euro ($921 billion) loan package aimed at stopping the euro region’s weakest members from defaulting.

“We fear that weakness in the equity markets shall bleed over into the gold market, as margin clerks again begin to look for places where liquidity can be found,” said Dennis Gartman, an economist and the editor of the Suffolk, Virginia-based Gartman Letter.

Assets held by Canada’s Central GoldTrust exchange-traded fund jumped 207,842 ounces to 610,832 ounces yesterday, its website showed. The fund said it sold 5.73 million units to a group of underwriters led by CIBC World Markets, raising $280.2 million. The units were primarily sold to investors in the U.S. and Canada, the fund said in a statement on its website.

‘Reduced Upside Potential’

Holdings in the SPDR Gold Trust, the biggest ETF backed by bullion, were unchanged at a record 1,313.13 metric tons yesterday, according to the company’s website. Global holdings of the metal by ETFs rose 1.4 tons to 2,051.9 tons yesterday, according to Bloomberg data from 10 providers.

Gold has “reduced upside potential” as investors seek riskier assets such as steel, Goldman Sachs Group Inc. analyst Vasily Nikolaev wrote in a report dated today. China’s steps to possibly loosen the yuan’s peg to the dollar “could see investors adopt a higher risk appetite, thus putting pressure on defensive gold equities. We see a significantly improved risk- reward in steel after the selloff.”

Silver for September delivery in New York fell 0.8 percent to $18.35 an ounce. Platinum for October delivery declined 1.6 percent to $1,550 an ounce. Palladium for September delivery lost 1.4 percent to $467.95 an ounce.

To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net.

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.