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Nikkei	8,580.39	+17.01	0.20%
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Gold Futures Drop From Six-Week High as Dollar's Rally Erodes Metal Demand

By Millie Munshi - 2010-08-13T18:29:20Z

Gold prices fell from a six-week high after a gain in the dollar sapped demand for the metal as an alternative investment.

The greenback added as much as 0.4 percent against a basket of six currencies today, heading for a fifth day of increases. Historically, gold and the dollar trade inversely. Earlier today, the metal touched $1,219.80 an ounce, the highest price since July 1. It set a record of $1,266.50 in June.

“The dollar isn’t doing anything to help gold out today,” said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois. “Gold at these levels is certainly not cheap. I wouldn’t be surprised to see it move lower from here.”

Gold futures for December delivery slipped 10 cents to $1,216.60 to close at 1:43 p.m. on the Comex in New York. The metal gained 0.9 percent this week, its second consecutive weekly rise.

Prices also were undermined today by traders who follow historical price patterns and sold the metal, Kaplan said.

“There’s some resistance at $1,220,” Kaplan said. “It’s mostly a technical trade today.”

Recession Returns?

Gold advanced this week after the Federal Reserve said U.S. economic growth is slowing and it will revive its Treasury purchases. Goldman Sachs Group Inc. said there’s a 25 percent to 30 percent chance the U.S. economy will fall back into a recession.

“The wobbly outlook for the economy is bolstering investor demand for gold,” said Hwang Il Doo, a Seoul-based senior trader with KEB Futures Co. “Good momentum is likely to continue into next week.”

Ten of 18 traders, investors and analysts surveyed by Bloomberg, or 56 percent, said gold will gain next week. Two predicted lower prices, and six were neutral.

Silver futures for September delivery gained 4.4 cents, or 0.2 percent, to $18.109 an ounce.

Platinum futures for October delivery lost $5.40, or 0.4 percent, to $1,526.20 an ounce of the New York Mercantile Exchange.

Palladium futures for September delivery gained $6.20, or 1.3 percent, to $477.25 an ounce.

To contact the reporter on this story: Millie Munshi in New York at mmunshi@bloomberg.net.