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Gold Falls as Dollar's Gain Erodes Demand for Metal as Alternative Asset
Gold futures fell as the dollar’s rally eroded demand for the precious metal as an alternative asset.
The greenback gained as much as 0.6 percent against a basket of six major currencies. Last week, investment in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, dropped 0.4 percent, ending a 10-week climb. Gold prices have dropped 5.4 percent from a record $1,266.50 an ounce on June 21.
“The dollar is holding gold back,” said Frank Lesh, a trader at FuturePath Trading LLC in Chicago. “There isn’t much fear at the moment to make people rush in and buy gold.”
Gold futures for August delivery dropped $11.10, or 0.9 percent, to $1,198.80 on the Comex in New York. The metal has climbed 9.4 percent this year.
Bets on higher prices by hedge-fund managers and other large speculators dropped. Speculative long positions outnumbered short positions by 209,042 contracts on the Comex in the week ended July 6, down 15 percent from a week earlier, government data showed.
“The highs for gold have been seen for the year,” said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois.
U.S. Borrowing Costs
Gold historically has moved inversely to the dollar. Last month, the metal also rose to all-time highs in euros, U.K. pounds and Swiss francs amid Europe’s sovereign-debt woes.
“Gold is stronger in non-U.S. dollar terms than it is in dollar terms,” said Dennis Gartman, an economist and the editor of the Suffolk, Virginia-based Gartman Letter. Gartman has recommended selling euros and buying gold.
Gold will retreat once the Federal Reserve begins to raise borrowing costs, said Kaplan of Prospector Asset Management. The Fed has kept its benchmark interest rate at zero percent to 0.25 percent since December 2008 to spur growth.
“Gold has been strong because there’s nowhere else to put your money,” Kaplan said. “But there’s going to be a rise in interest rates fairly soon.”
Silver futures for September delivery fell 15.6 cents, or 0.9 percent, to $17.917 an ounce.
Platinum futures for October delivery declined $17.90, or 1.2 percent, to $1,515.30 an ounce on the New York Mercantile Exchange.
Palladium futures for September delivery dropped $2.80, or 0.6 percent, to $454.15 an ounce.
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
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