Gold Declines on Strengthening Dollar, Erasing Advance to a Record Price

Gold declined in New York as a stronger dollar curbed demand for an alternative asset, prompting investors to sell the metal after its rally to near a record. Silver pared a gain to a 30-year high.

Gold futures earlier today traded 20 cents below a record $1,398.70 set Nov. 5, and spot prices reached an all-time high in London. The euro slid against the dollar as concern that Ireland will struggle to plug its budget deficit curbed demand for the region’s assets. Bullion typically moves inversely to the greenback, which fell to a nine-month low versus the euro last week.

“The dollar moved stronger, which influenced the gold price to trade lower,” said Bayram Dincer, an analyst at LGT Capital Management in Switzerland. “Gold trades at elevated levels. We expect the next direction to be toward lower prices, as profit-taking may be necessary.”

Gold futures for December delivery lost $6, or 0.4 percent, to $1,391.70 an ounce at 8:09 a.m. on the Comex in New York. The metal for immediate delivery in London was little changed at $1,392.85 after earlier today reaching a record $1,398.60.

Bullion fell to $1,390 an ounce in the morning “fixing” in London, used by some mining companies to sell output, from $1,395.50 at the afternoon fixing on Nov. 5.

Currency Debasement

Gold is up 27 percent this year and is heading for a 10th annual gain, the longest winning streak since at least 1920 in London, partly on demand for an alternative asset to protect against the debasement of currencies. Precious metals have outperformed global equities, Treasuries and most industrial metals this year as central banks maintained low interest rates and governments spent trillions of dollars to spur growth.

European Union Economic and Monetary Affairs Commissioner Olli Rehn arrives in Dublin today to confer with policy makers on spending cuts and tax increases. The Irish government laid out a plan last week to cut spending and raise taxes by as much as 6 billion euros ($8.4 billion) in 2011.

Group-of-20 economies should consider using gold as a reference point for market expectations of currency values, inflation and deflation as they reform the global monetary system, World Bank President Robert Zoellick said. While textbooks may view gold as “old money,” markets use it as an alternative monetary asset, Zoellick wrote in today’s Financial Times.

Bullion Supply

“We do not believe that a form of the gold standard is viable,” UBS AG analyst Edel Tully said today in a report. “Any reserve currency needs a supply that can grow as rapidly as global trade. Gold supply falls significantly short of this basic requirement.”

Gold assets in exchange-traded products were unchanged at 2,085.85 metric tons on Nov. 5, according to data compiled by Bloomberg from 10 providers. Holdings increased for the first time in 15 days on Nov. 4 and reached a record 2,104.65 tons on Oct. 14.

Silver for December delivery in New York added 0.3 percent to $26.815 an ounce after reaching $27.015, the highest level since March 1980. Prices are up 59 percent this year. Silver reached an all-time high of $50.35 in New York in 1980, a year after the Hunt brothers tried to corner the market.

An ounce of gold bought as little as 51.7677 ounces of silver in London today, the least since July 2008, before the collapse of Lehman Brothers Holdings Inc. triggered the worst recession since World War II.

‘Overextended’ Silver

“There is an air of euphoria around silver, as it seems to be unable to put a foot wrong,” Standard Bank Plc said in a report dated Nov. 5. “The market is overextended, however, and we must caution that there is the possibility of a sharp correction, at least toward $23. In its current mood, though, any such dip would be likely to find buyers.”

Silver futures’ 14-day relative strength index, a gauge of whether a commodity is overbought or oversold, is at 76.7. Some analysts and traders who study technical charts view readings above 70 as signaling a potential impending drop.

Palladium for December delivery was 1.1 percent higher at $692.60 an ounce after reaching $700.20 on Nov. 5, the highest price since April 2001. It’s up 69 percent this year. Platinum for January delivery declined 0.4 percent to $1,761 an ounce. Prices reached $1,799.50 on Nov. 4, the highest level since July 2008. Both metals are used mostly to make jewelry and pollution- control devices for cars.

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

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net

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