Gold Tumbles to Three-Month Low as Investment Demand Slumps

Gold futures fell to the lowest in almost three months as demand waned for precious metals as alternative investments.

Global investors are becoming more confident about the economic outlook, according to a quarterly poll of 1,000 Bloomberg subscribers. Almost twice as many of those surveyed said they will cut gold holdings in the next six months, instead of increasing them. More than half said the gold market is a bubble.

“Our urge to be long gold has fallen quite sharply, and the trend has turned rather badly against the longs,” said Dennis Gartman, an economist and the editor of the Suffolk, Virginia-based Gartman Letter. He has reduced his positions in the metal by two-thirds since the beginning of the year.

Gold futures for February delivery fell $12.20, or 0.9 percent, to settle at $1,332.30 an ounce at 1:42 p.m. on the Comex in New York. Earlier, the price touched $1,321.90, the lowest since Oct. 27.

This month, gold has dropped 6.3 percent. Last year, the metal climbed 30 percent, outperforming stocks and bonds as central banks kept interest rates at record lows to revive the economy.

Assets in exchange-traded products backed by gold slid 11.12 metric tons to 2,074.11 tons yesterday, according to data compiled by Bloomberg from 10 providers. Holdings reached a record 2,114.6 tons on Dec. 20.

Higher Interest Rates

U.S. interest rates are expected to rise, eroding demand for the metal, analysts at Goldman Sachs Group Inc. said today in a report. The price reached a record $1,432.50 on Dec. 7 and gained for the 10th straight year in 2010.

The European Central Bank may raise its benchmark rate from 1 percent this year as the region’s fiscal crisis ebbs, said Adam Klopfenstein, a senior strategist at Lind-Waldock in Chicago.

“As long as the euro-zone is able to sell their bonds, there’s less of a flight to quality into gold,” Klopfenstein said.

Gold’s losses accelerated after the metal failed yesterday to settle above the 100-day moving average. The price may fall to $1,270, close to the 200-day moving average, Gartman of the Gartman Letter said.

Silver futures for March delivery dropped 51.6 cents, or 1.9 percent, to $26.805 an ounce. Earlier, the metal touched $26.54, the lowest since Nov. 29. The commodity has slumped 13 percent this month after jumping 84 percent in 2010.

Palladium futures for March delivery tumbled $31.80, or 3.9 percent, to $784.75 an ounce on the New York Mercantile Exchange, the biggest drop since Jan. 4.

Platinum futures for April delivery declined $32.30, or 1.8 percent, to $1,787.30 an ounce.

To contact the reporters 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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