Gold Futures Cap Second Straight Weekly Loss as China May Reduce Purchases

Gold fell in New York, capping a second straight weekly loss, as moves by China to fight inflation and slow growth eroded demand for precious metals and raw materials.

China ordered banks to set aside larger reserves for the second time in two weeks. The country is the biggest bullion consumer after India. The Thompson Reuters/Jefferies CRB Index of 19 commodities fell as much as 1.4 percent. Gold has dropped 5.1 percent from a record $1,424.30 an ounce on Nov. 9.

“Any tightening efforts by China will be interpreted by the market as an inflation-reducing event, which would take some luster out of gold,” said Adam Klopfenstein, a senior market strategist at Lind-Waldock in Chicago.

Gold futures for December delivery lost 70 cents to settle at $1,352.30 at 1:30 p.m. on the Comex in New York. The metal lost 1 percent this week and 2.3 percent last week.

The reserve requirement will increase 50 basis points starting Nov. 29, China’s central bank said on its website today. The move spurred speculation that the country also will raise borrowing costs.

The country’s inflation rate rose to a two-year high last month. Surging demand in China, the world’s biggest user of many commodities, lifted the CRB index by more than 50 percent since 2001.

‘Less Demand’

“Higher reserve requirements and the expectation of higher rates to cool their economy means less demand for gold and other commodities,” said Frank Lesh, a trader at FuturePath Trading LLC in Chicago.

China bought 153.7 metric tons of the precious metal in the third quarter, according to the producer-funded World Gold Council. India purchased 229.5 tons.

Gold has jumped 23 percent in 2010, heading for the 10th straight annual gain.

The rally was driven partly by “higher investment appetite from Indian and Chinese investors,” Eily Ong, an investment research manager at the council in London, said in an interview earlier this week.

Still, China’s economy is “humming fast,” said Klopfenstein of Lind-Waldock. The country’s “nominal moves to slow down the economy” won’t slow investment in gold, he said.

Silver futures for December delivery rose 34.5 cents, or 1.3 percent, to $27.179 an ounce. The metal has climbed 61 percent this year.

Palladium futures for December delivery rose $8.20, or 1.2 percent, to $703.70 an ounce on the New York Mercantile Exchange. The price has surged 72 percent this year.

Platinum futures for January delivery added $7.20, or 0.4 percent, to $1,671.10 an ounce. The metal has gained 14 percent this year.

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

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net.

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