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Gold Drops Most in a Week as China's Trading May Ebb, Dollar Extends Rally

By Yi Tian and Nicholas Larkin - 2010-11-26T19:07:24Z

Gold declined the most in a week as demand in China may slow and the dollar’s rally reduced the appeal of the metal as an alternative investment. Silver fell 3 percent.

The Shanghai Futures Exchange will increase margins on gold, copper and aluminum after the market closes on Nov. 29 as China moves to curb speculation and damp inflation. The dollar rose to a two-month high against a six-currency basket on demand for a haven amid concerns that the North and South Korean conflict and European debt crisis will escalate.

“China raising margin requirements will reduce excessive speculation, and put a lot of pressure on the market,” said Phil Streible, a senior strategist at Lind-Waldock, a broker in Chicago. Gold is trading as “a currency alternative,” he said.

Gold futures for February delivery fell $10.70, or 0.8 percent, to settle at $1,364.30 an ounce at 1:43 p.m. on the Comex in New York, the biggest drop for a most-active contract since Nov. 16. U.S. markets were closed yesterday for the Thanksgiving holiday.

The metal has gained 24 percent this year, reaching a record $1,424.30 on Nov. 9.

“Bullion prices have been under pressure as a result of the decline in risk sentiment,” James Moore, an analyst at TheBullionDesk.com in London, said in a report. Gold may “remain underpinned by investment bargain hunting as investors look to diversify against the volatile macro-economic and geopolitical background,” he said.

Silver futures for March delivery slid 83.1 cents to $26.772 an ounce. The price has jumped 59 percent this year, reaching a 30-year high of $29.34 on Nov. 9.

Platinum futures for January delivery dropped $13.20, or 0.8 percent, to $1,645.20 an ounce on the New York Mercantile Exchange.

Palladium futures for March delivery declined $18.60, or 2.7 percent, to $678.85 an ounce.

To contact the reporters on this story: Yi Tian in New York at Ytian8@bloomberg.net; Nicholas Larkin in London at nlarkin1@bloomberg.net

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