Gold Drops From 17-Week High as Dollar Strength Crimps Demand

New York (Feb 26)  Gold prices declined from a 17-week high as a stronger dollar trimmed demand for the precious metal as an alternative investment.

The Bloomberg Dollar Spot Index rose the most in a week against a basket of 10 currencies amid speculation that Federal Reserve Chair Janet Yellen will reiterate a plan to continue to cut bond-buying when she testifies before a Senate panel tomorrow. Bullion has risen 6.8 percent this month, while the greenback dropped 0.9 percent. Net gold imports from Hong Kong by China, the world’s largest buyer, were 83.6 metric tons in January, down from 91.9 tons in December.

“The dollar is keeping gold down today,” Bill O’Neill, a partner at Logic Advisors in Upper Saddle River, New Jersey, said in a telephone interview. “Also, physical demand is showing signs of slowdown.”

Gold futures for April delivery slid 1.3 percent to $1,324.70 an ounce at 11 a.m. on the Comex in New York. Earlier, prices climbed to $1,345.60, the highest for a most-active contract since Oct. 30.

The precious metal is set for the first back-to-back monthly gains since August as concern that the U.S. recovery may be faltering and turmoil in emerging markets increased demand for a store of value. Assets in the SPDR Gold Trust, the biggest fund backed by the metal, climbed for a third day yesterday in the longest stretch of gains since November 2012.

Bullion has rallied 10 percent this year, rebounding from last year’s 28 percent drop, even as the Fed scaled back stimulus on signs of U.S. growth. Purchases of new U.S. homes unexpectedly climbed 9.6 percent to a 468,000 annualized pace, exceeding the highest estimate of economists surveyed by Bloomberg and the most since July 2008, figures from the Commerce Department showed today.

Gold surged 70 percent from December 2008 to June 2011 as the central bank pumped more than $2 trillion into the financial system to boost growth.

Silver futures for May delivery slumped 3.6 percent to $21.215 an ounce.

Source:  Bloomberg