Gold Declines on Slumping Investment Demand, U.S. Equity Rally

Gold futures fell for the second straight day as equities rallied, eroding demand for the metal as a haven.

The Dow Jones Industrial Average topped 12,000 for the first time since June 2008. Holdings in exchange-traded products backed by gold yesterday tumbled the most since October 2008. Before today, the commodity fell 6.3 percent this month after reaching a record of $1,432.50 an ounce on Dec. 7. The metal rose 30 percent last year, beating returns in stocks and bonds.

“The funds are turning away from gold,” said Frank Lesh, a trader at FuturePath Trading LLC in Chicago. “The risk trade is back on, and they expect the economy to improve. Funds want price appreciation, and clearly no one expects gold to outperform other asset classes this year.”

Gold futures for February fell $7, or 0.5 percent, to $1,325.30 at 11:16 a.m. on the Comex in New York. Earlier, the most-active contract gained as much as 0.4 percent. Yesterday, the price dropped to $1,321.90, the lowest since Oct. 27.

Assets in gold-backed ETPs dropped 31.02 metric tons, or 1.5 percent, to 2,043.09 tons yesterday, the lowest level since Aug. 10, according to data compiled by Bloomberg from 10 providers. Holdings reached a record 2,114.6 tons on Dec. 20.

“There is no fear trade, no flight to quality,” Lesh said. Gold may drop to $1,280, close to the 200-day moving average, he said.

Losses may be limited on speculation the slump is overdone, said Tom Pawlicki, an analyst at MF Global Holdings Ltd. in Chicago.

Relative-Strength Index

The 14-day relative-strength index is at 32.71, the lowest since October 2008. A drop below 30 is a signal to some traders that the price is poised to gain.

“The negative side seems a bit played out at the moment,” Pawlicki said.

Silver futures for March delivery dropped 8.5 cents, or 0.3 percent, to $26.72 an ounce. Before today, the metal fell 13 percent this month after rallying 84 percent in 2010.

Palladium futures for March delivery rose $9.85, or 1.3 percent, to $794.60 an ounce on the New York Mercantile Exchange.

Platinum futures for April delivery climbed $5.10, or 0.3 percent, to $1,792.40 an ounce.

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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