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Gold Gives Up Gains as Commodity Slump Revives Deflation Concern

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Gold gave up most of its earlier gains as the meltdown across commodity markets revived concerns over deflation, cutting the appeal of precious metals as a store of value.

The Bloomberg Commodity Index of 22 components had its biggest intraday loss in a month, led by declines in wheat and oil. Investors dumped raw materials after China surprised markets by devaluing its currency, making imports of grains, energy and metals more expensive. Gold earlier rose as China’s move spurred demand for haven assets, but as the losses in commodities deepened, bullion pared its advance.

“Things would have to get really out of control for gold to achieve really higher levels and stay there,” Tim Evans, the chief market strategist at Long Leaf Trading Group Inc. in Chicago, said in a telephone interview. “We’re still going through a period of deflation overall in the commodities space, and my expectation is gold will react accordingly to the downside as well.”

Gold futures for December delivery gained 0.3 percent to settle at $1,107.70 an ounce at 1:42 p.m. on the Comex in New York, after touching $1,119.10, the highest since July 20. Trading was about 30 percent higher than the 100-day average for this time, data compiled by Bloomberg show.

Prices tumbled 6.5 percent in July, reaching a five-year low. Guidance from the Federal Reserve that policy makers will probably raise interest rates this year has cut demand for gold because it doesn’t pay interest, unlike competing assets. The metal is heading for a third straight annual loss amid low inflation, a stronger dollar and gains for U.S. equities.

Also on the Comex, silver futures for September delivery dropped 0.1 percent to $15.284 an ounce. On the New York Mercantile Exchange, palladium also fell, while platinum rose.

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