Gold Falls in N.Y. as Dollar Climbs; Platinum, Silver Decline

By Pham-Duy Nguyen

Nov. 17 (Bloomberg) -- Gold fell in New York as the dollar climbed, reducing the appeal of the precious metal as an alternative investment. Platinum and silver also declined.

The dollar gained against a weighted basket of six major currencies, extending a two-week rally. Precious meals often move in the opposite direction of the greenback. Gold fell 18 percent last month as the dollar rallied 7.8 percent.

``The dollar has the strength that it does because people are pulling their money home and going to cash,'' said Frank Lesh, a trader at FuturePath Trading LLC in Chicago. ``Gold is just reacting to the dollar. There's a loss in demand for all metals and commodities.''

Gold futures for December delivery fell 50 cents to $742 an ounce on the Comex division of the New York Mercantile Exchange. Earlier, the price dropped as much as 1.7 percent.

Silver futures for December delivery declined 16 cents, or 1.7 percent, to $9.33 an ounce.

Platinum futures for January delivery tumbled $24.50, or 2.7 percent, to $820.60 an ounce on the Nymex. Palladium for December delivery rose $1.05, or 0.5 percent, to $217.70 an ounce.

Hedge-fund managers and other large speculators decreased their net-long positions in Comex gold for the seventh straight week. Speculative long positions, or bets prices will rise, outnumbered short positions by 63,959 contracts in the week ended Nov. 11, Commodity Futures Trading Commission data showed on Nov. 14. That was the lowest level since June 2007.

UBS Forecast

Gold will average $700 next year, UBS AG said in a report today. Futures have averaged $882 in 2008.

``Long-term investors in gold should reduce holdings,'' UBS said. ``Disinflation and a stronger dollar will mean gold is unlikely to perform well over the next year or two. We forecast higher gold prices over the next three months. But for this to materialize, the recent dollar strength will need to abate.''

Platinum's steep decline this year makes the metal a better bet than gold, UBS said. Platinum dropped 46 percent this year and is down 64 percent from its March record of $2,308.80. Gold fell 11 percent this year and is down 28 percent from the all- time high in March.

Platinum will average $900 an ounce in 2009, UBS said. Futures have averaged $1,678 this year.

Falling equity prices will erode demand for gold and other metals, Lesh said. U.S. stocks extended a two-week drop after Citigroup Inc. announced plans to cut more than 50,000 jobs and manufacturing in New York state contracted at the fastest pace ever.

``If the economy is doing poorly, it means there isn't money left over to invest in gold,'' Lesh said. ``You lose some of the wealth effect. All commodities are deflating.''

Gold tracked U.S. equities today, rising as much as 0.8 percent, while the Standard & Poor's 500 Index climbed 1 percent before heading lower.

``Gold is still a tail being wagged by stocks,'' said Frank McGhee, the head dealer of Integrated Brokerage Services LLC in Chicago. ``Gold has been sold down to support equity losses. With some pressure coming off stocks, gold can move higher. Stocks just have to stop sliding.''

To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.