Gold Fall as OPEC Demand Cut Boosts Deflation Worries

Gold futures fell as a slump in oil prices boosted concern that inflation will stay low, limiting the metal’s appeal as a hedge.

Brent and West Texas Intermediate crudes dropped to five-year lows as OPEC said it expects demand for its supplies next year to be the lowest since 2003. The correlation between gold and oil advanced to 0.38 last week, the strongest link since July 2013. A reading of 1 would mean the commodities were moving in lockstep.

Prices yesterday reached a six-week high as declines in the equity market boosted demand for alternative assets. The Federal Reserve meets next week as policy makers debate the timing of the first rate increase in eight years. Higher borrowing costs cut gold’s allure because bullion generally offers investors returns only through price gains.

“A lower oil price reduces the inflation expectations, which is in turn negative for gold,” Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt, said in a telephone interview. “After the sharp price rise yesterday, the marketplace is hesitant to put more money into gold at the moment.”

Gold futures for February delivery fell 0.2 percent to settle at $1,229.40 an ounce at 1:43 p.m. on the Comex in New York. The metal touched $1,239 yesterday, the highest since Oct. 23.

The MSCI All-Country Index of shares and the Bloomberg Dollar Spot Index both headed for a third day of losses. Gold touched a four-year low of $1,130.40 on Nov. 7 as equities rallied and the greenback climbed to a five-year high.

Bloody Noses

“The bears have had their noses bloodied as of late and this has created a marketplace that is reluctant to go heavily short at the moment,” David Govett, head of precious metals at Marex Spectron Group in London, said in an e-mailed note. Investors who are betting on higher prices are looking for gold to test $1,250, he added.

“Whilst this is entirely possible should the dollar and stock markets continue their downward move, I very much doubt we will see prices a lot higher unless other factors help,” Govett said.

Holdings in exchange-traded products backed by bullion gained 0.2 percent to 1,609.8 metric tons as of yesterday, rising for the first time in four days.

Silver futures for March delivery gained 0.3 percent to $17.187 an ounce, increasing for the third-straight day.

Platinum futures for January delivery dropped 0.3 percent to $1,242.60 an ounce, while palladium futures for March delivery added 1.2 percent to $821.40 an ounce.

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