Gold Has First Weekly Decline Since July as Equity Rally Cuts Haven Demand

Gold futures fell, capping the first weekly drop since late July, as a rebound in equities cut demand for the precious metal as a haven.

The MSCI World of Index of stocks headed for a second straight weekly advance as reports signaled the global economy is improving. Gold approached the record high this week before retreating.

“Gold doesn’t have the fear factor to push it through new highs,” said Frank Lesh, a trader at FuturePath Trading in Chicago. “Equities have stabilized, and the European-debt crisis was worth only one day of fear, so a lot of short-term guys are coming out of the market.”

Gold futures for December delivery dropped $4.40, or 0.4 percent, to settle at $1,246.50 an ounce at 1:49 p.m. on the Comex in New York. The price dropped 0.4 percent this week. The metal is up 14 percent this year.

Reports today showed Japan’s economy slowed less than estimated in the second quarter and imports to China increased in August more than economists predicted.

“You’re seeing a shallow correction in gold in the face of risk embracement from the trading community,” said Adam Klopfenstein, a senior market strategist at Lind-Waldock in Chicago. “It’s liquidation mode for assets that are considered risk-aversion tools.”

Gains ‘Inevitable’

On Sept. 7, gold prices settled at $1,259.30, the highest closing price ever, amid renewed European-debt concerns. The intraday record of $1,266.50 was on June 21. The metal climbed to as high as $1,264.70 on Sept. 8.

Gold probably will top the record, Deutsche Bank AG said in a report.

“New price highs are inevitable in an environment of heightened macro-economic volatility,” Deutsche Bank said. “Gold prices would need to reach $2,000 to represent excessive levels of valuation.”

The metal has climbed this year amid tame inflation. Gold posted gains in the previous nine years.

“If deflationary worries re-emerge, we would expect gold to outperform the metals complex,” Deutsche Bank said. “Given our conviction that central bankers will lean heavily toward an inflationary outcome, rather than deflationary, we expect that metals such as silver and palladium could outperform.”

The European Central Bank and the U.S. Federal Reserve have kept benchmark interest rates at a record low to help revive the global economy.

Silver futures for December delivery fell 1 cent to $19.845 an ounce on the Comex. The price dropped 0.5 percent this week.

Platinum futures for October delivery declined $10.80, or 0.7 percent, to $1,542.50 an ounce on the New York Mercantile Exchange. The price slipped 1.2 percent this week.

Palladium futures for December delivery slid $1.95, or 0.4 percent, to $519.85 an ounce. The metal slid 2.2 percent this week.

To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.

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