Why Did Gold Drop This Week?

Gold Falls to Seven-Week Low as Dollar Rally Erodes Metal Demand

Dec. 12 (Bloomberg) -- Gold futures fell to the lowest in almost seven weeks as the dollar’s rally curbed demand for the precious metal as an alternative investment.

The greenback jumped as much as 1.3 percent against a basket of six currencies. The Standard & Poor’s GSCI index of 24 energy, metal and agriculture prices dropped as much as 1.6 percent after Moody’s Investors Service said it will review ratings for all European Union countries, citing a failure to produce “decisive” measures to end the region’s debt crisis.

“The stronger dollar is hurting gold,” Miguel Perez- Santalla, a sales vice president at Heraeus Precious Metals Management in New York, said in a telephone interview. “People are dumping all commodities, including gold, because of what is happening in Europe.”

Gold futures for February delivery declined 2.8 percent to settle at $1,668.20 an ounce at 2:03 p.m. on the Comex in New York, the biggest drop for a most-active contract since Nov. 17. Earlier, the price touched $1,660.30, the lowest since Oct. 25.

Last week’s European Union summit offered few new measures and doesn’t diminish the risk of credit-ranking revisions, Moody’s said today.

The “unresolved issue in Europe will keep the dollar strong against the euro, which could weigh on gold prices,” Sun Yonggang, an analyst at Everbright Futures Co in Shanghai, said in a report.

Gold has climbed 17 percent this year, heading for the 11th straight annual gain, as investors sought to diversify away from equities and some currencies.
Silver futures for March delivery slumped 3.9 percent to $31.002 an ounce, the biggest drop since Nov. 21.

On the New York Mercantile Exchange, palladium futures for March delivery fell 3.4 percent to $663 an ounce. Platinum futures for January delivery declined 1.9 percent to $1,486.90 an ounce.

--With assistance from Glenys Sim in Singapore. Editors: Patrick McKiernan, Millie Munshi

To contact the reporters on this story: Debarati Roy in Mumbai at droy5@bloomberg.net; Nicholas Larkin in London at nlarkin1@bloomberg.net

To contact the editor responsible for this story: Patrick McKiernan at pmckiernan@bloomberg.net

By Debarati Roy and Nicholas Larkin
http://www.businessweek.com/news/2011-12-12/gold-falls-to-seven-week-low-as-dollar-rally-erodes-metal-demand.html