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Gold Futures Decline as Rally in Euro Erodes Demand for Alternative Asset
Gold futures fell, heading for a third straight weekly decline, on speculation that a rebound in the euro will reduce demand for the precious metal as an alternative to the currency.
The euro rose for a third day against the yen and the dollar as European Central Bank President Jean-Claude Trichet signaled the economic recovery is gaining momentum. The outlook eased investor concern over Europe’s sovereign-debt crisis, which sent gold to a record $1,266.50 an ounce on June 21 and to all-time highs in euros, British pounds and Swiss francs.
“As the euro strengthens, more and more of the fear that had driven investors into gold is being alleviated,” said Adam Klopfenstein, a senior market strategist at Lind-Waldock in Chicago. “The ‘sell euros, buy gold’ trade is being unwound.”
Gold futures for August delivery fell $2.80, or 0.2 percent, to $1,196.10 on the Comex in New York. The metal is down 1 percent for the week, trimming this year’s rally to 9.1 percent.
The euro touched an eight-week high against the dollar. Trichet said the second quarter in the euro region was probably better than the first. The International Monetary Fund said the world economy will expand by 4.6 percent in 2010, compared with a 4.2 percent projection in April.
Less Uncertainty
“We’re tamping down on uncertainty,” said David Hightower, a metals analyst at Hightower Futures Research in Chicago. “There’s less euro uncertainty and less economic uncertainty. It’s a classic extraction of flight-to-quality longs.”
Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, was unchanged yesterday after dropping for three straight sessions.
“Gold looks like it wants to go lower,” said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois. “It doesn’t have any upward interest.”
Traditionally, gold has moved inversely to the dollar as an alternative asset.
“Gold is in transition,” said Frank McGhee, the head dealer at Integrated Brokerage Services in Chicago. “You have a more traditional gold-and-dollar relationship coming back, but it’s very fragile.”
The metal has failed to close above $1,200 this week, a signal to some traders that prices are poised to decline further.
“There is disappointment that gold isn’t holding above $1,200,” said Frank Lesh, a trader at FuturePath Trading LLC in Chicago. “We have a lack of interest in gold. We see the shorts getting out and the longs getting out.”
Silver futures for September delivery fell 12.8 cents, or 0.7 percent, to $17.872 an ounce on the Comex.
Platinum futures for October delivery slipped $10, or 0.7 percent, to $1,516.40 an ounce on the New York Mercantile Exchange. Palladium futures for September delivery rose $2.05, or 0.5 percent, to $444.40 an ounce.
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
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