Gold Declines for Second Day as Korean Tensions Drive U.S. Currency Higher

Gold declined for a second day as military and political tensions on the Korean peninsula drove the dollar to a two-month high, eroding demand for the metal.

Immediate-delivery gold fell as much as 0.8 percent to $1,353.30 an ounce and was at $1,361.85 at 2:47 p.m. in Tokyo. Bullion has gained 24 percent this year, reaching a record $1,424.60 an ounce on Nov. 9. Gold for February delivery dropped 0.2 percent to $1,362.10 an ounce on the Comex in New York.

South Korea resisted China’s call to resume six-party talks with North Korea, as its navy began maneuvers with U.S. warships amid threats of a “merciless” response by the North. North Korea on Nov. 23 shelled a South Korean fishing community and military base, killing four people.

“Given geopolitical risks on the Korean peninsula, speculators prefer to put money into the dollar rather than a traditional safe haven like gold,” said Kazuhiko Saito, an analyst at Tokyo-based broker Fujitomi Co.

U.S. and South Korean warships led by the aircraft carrier USS George Washington have begun four days of drills in the region. North Korea “will deal a merciless military counter- attack at any provocative act of intruding into its territorial waters,” according to a Rodong newspaper commentary carried yesterday by the North’s official Korean Central News Agency.

Dollar Gains

The Dollar Index, which tracks the currency’s value against six counterparts, rose as much as 0.4 percent to 80.652, the highest since Sept. 21. The dollar gained as much as 0.5 percent against the euro after European Central Bank council member Christian Noyer said monetary easing creates the potential for global imbalances.

European finance chiefs ended crisis talks in Brussels yesterday, handing Ireland an 85 billion-euro ($113 billion) aid package amid speculation that Portugal and perhaps even Spain will require external support.

In China, the Shanghai Futures Exchange will increase margins on gold, copper and aluminum after the market closes today as the country moves to curb speculation and restrain quickening inflation.

Gold assets in exchange-traded products fell to 2,083.18 metric tons as of Nov. 26 from 2,085.08 on Nov. 25, according to data compiled by Bloomberg from 10 providers. Holdings reached a record 2,104.65 tons on Oct. 14. Silver holdings declined to 14,770.30 tons on Nov. 26 from 14,930.29 tons, the highest amount since at least February, data from four providers show.

Silver for immediate delivery fell 0.3 percent to $26.64 an ounce after losing 3.2 percent on Nov. 26. The price reached $29.36 an ounce on Nov. 9, the highest level since March 1980.

Palladium dropped 1.1 percent to $673 an ounce, while platinum lost 0.2 percent to $1,643.50 an ounce. Both metals are used in jewelry and pollution-control devices for cars.

To contact the reporter on this story: Jae Hur in Tokyo at jhur1@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net