Gold, Silver Futures Decline as Dollar Rebounds Against Euro

NEW YORK (July 3) Gold and silver futures fell after the dollar rebounded against the euro, eroding the appeal of precious metals as alternative investments.

The dollar rose as much as 1.3 percent against the euro after the European Central Bank signaled that a 25 basis-point increase in its benchmark lending rate today may be enough to control inflation. Gold still has climbed 42 percent in the past year as the ECB held rates steady while the Federal Reserve slashed borrowing costs and the dollar sank.

``Gold has now run out of negative dollar news,'' Jon Nadler, a senior analyst at Kitco Minerals & Metals Inc. in Montreal, said in an e-mail. The metal reached a record $1,033.90 an ounce on March 17.

Gold futures for August delivery dropped $12.90, or 1.4 percent, to $933.60 an ounce on the Comex division of the New York Mercantile Exchange. The metal climbed 0.2 percent this week.

Silver futures for September delivery declined 5.5 cents, or 0.3 percent, to $18.37 an ounce. The price climbed 3.7 percent this week.

Silver is up 23 percent this year, while gold has climbed 11 percent. The markets will be closed tomorrow for the U.S. Independence Day holiday.

The ECB boosted it main refinancing rate to 4.25 percent, the highest since 2001, to cool inflation. The Fed cut its benchmark lending rate to 2 percent on April 30, the last of seven straight cuts from 5.25 percent in September, to head off a recession.

``We are looking at the prospect that the next central bank to raise rates will indeed be the Fed,'' Nadler said.

Interest-rate futures show a 52 percent chance the Fed will raise the federal-funds rate to 2.25 percent by Sept. 16, compared with a 19 percent chance a week ago.

Oil's Record

A decline in gold may be limited should soaring energy costs boost demand for the metal as a hedge against inflation, analysts said.

Crude-oil futures reached a record $145.85 a barrel today on concern an attack on Iran's nuclear facilities will disrupt Middle East petroleum supplies. Iran is OPEC's second-biggest producer. Almost a quarter of the world's oil flows through the Strait of Hormuz, a narrow waterway between Iran and Oman at the mouth of the Persian Gulf.

``Fundamentally, I remain very bullish,'' said Adrian Day, president of Adrian Day's Asset Management in Annapolis, Maryland. ``With geopolitical problems over Iran, oil prices high and inflation brewing, this is the perfect storm for gold.