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Gold Falls for a Third Day as Equities Rally, Eroding Demand

Gold declined for a third day in New York as gains in equity markets tempered concerns that economic growth is slowing, reducing demand for the metal as a protection of wealth.

The MSCI All-Country World Index of equities climbed for a third day after a report showed Japan’s economy shrank less than forecast. U.S. retail sales rose the most in four months in July, while applications for jobless benefits were the lowest since April, reports showed last week. Gold futures touched a record $1,817.60 an ounce on Aug. 11.

“Given the return of some risk appetite and the influx of bargain-hunters into the equity markets, gold seems likely to face further pressure in the coming sessions,” James Moore, an analyst at in London, wrote in a report. Still, “we expect the dip-buying mentality to continue, with gold remaining underpinned by investment demand.”

Gold for December delivery fell $6.70, or 0.4 percent, to $1,735.90 an ounce by 8:08 a.m. on the Comex in New York. Immediate-delivery gold was down 0.7 percent at $1,735.45 in London.

CME Group Inc., the largest futures market, hiked margins on gold contracts, or the minimum amount of cash speculators must keep on deposit, by 22 percent from the close of trade on Aug. 11. Global equities dropped to the lowest level since September last week as Standard & Poor’s lowered its credit rating for the U.S. from AAA, stoking concern the global economic recovery may be at risk.

Gold’s Gain

Gold is up 22 percent this year, heading for an 11th straight annual gain, the longest winning streak since at least 1920 in London. The MSCI All-Country World Index fell 8.1 percent this year, the Standard & Poor’s GSCI Index of 24 commodities rose 1.9 percent, while Treasuries returned 6.7 percent in 2011, a Bank of America Merrill Lynch index showed.

Demand for gold as a haven and last week’s drop in equities pushed bullion’s ratio to the S&P 500 index to the highest level since at least 1992, data compiled by Bloomberg show. The level, calculated by dividing an ounce of gold by the index, reached 1.6 on Aug. 10 and has averaged 1.1 so far this year.

The “uncertainty in financial markets, whether from the growth outlook or the ongoing sovereign-debt crisis, is expected to remain a benefit to perceived safe-haven commodity assets, of which we believe gold is the standout,” Morgan Stanley analysts led by Hussein Allidina said in a report today.

Coin Sales

The U.S. Mint’s American Eagle gold-coin sales are 55,500 ounces so far in August, according to figures on the mint’s website. Sales are heading for the best month since January, when the total was 133,500 ounces, according to the figures.

Holdings of the metal in exchange-traded products fell for a second day on Aug. 12, declining 3.8 metric tons to 2,182.1 tons, data compiled by Bloomberg show. Assets reached a record 2,216.8 tons on Aug. 8.

Richard Nixon, the former U.S. president, abandoned the gold standard 40 years ago today. Between 1968 and 1971, the metal and the dollar were officially exchanged at a fixed rate after the system had tied gold at about $35, according to the World Gold Council.

The system “was devised precisely to prevent the sort of economic conditions that we suffer today,” Ross Norman, chief executive officer of Sharps Pixley Ltd., a London-based bullion brokerage, said in an Aug. 12 e-mail. “The solution to today’s problems is not, in my opinion to head back down the yellow brick road and reintroduce a gold standard. The gold market is insufficiently large to sensibly play that role by itself.”

Silver for September delivery in New York rose 0.1 percent to $39.16 an ounce. Palladium for September delivery gained 1 percent to $756 an ounce. Platinum for October delivery was little changed at $1,797.70 an ounce.

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