Gold Heads for Fourth Weekly Drop as Dollar Gains (Correct)
(Corrects price change in fourth paragraph.)
June 9 (Bloomberg) -- Gold headed for a fourth consecutive weekly decline, its longest losing streak in a year, as the dollar gained against the euro, making the precious metal less attractive as an alternative investment.
The dollar has gained 2 percent this week against the euro on speculation the Federal Reserve may raise interest rates for a 17th consecutive time. The European Central Bank yesterday raised its key rate a third time since December. That increase of 25 basis points to 2.75 percent was less than a 50-point boost forecast by analysts such as Kevin Gaynor at Royal Bank of Scotland Plc. in London.
``Markets are disappointed by the ECB, putting downward pressure on the euro, and gold got hit quite strongly,'' said Michael Widmer at Macquarie Bank Ltd. in London in an interview today. A speech by ECB President Jean-Claude Trichet yesterday in Madrid showed ``no strong inclination to boost rates.''
Gold for immediate delivery fell 57 cents to $612.68 an ounce at 12:23 p.m. in London. A close at that level would give bullion a weekly drop of about 4 percent.
The precious metal has declined 14 percent since trading at a 26-year high of $730.40 on May 12.
``Suddenly the market's appetite for risk has taken an about- turn,'' said Nick Moore, an analyst at ABN Amro Holding NV in London. ``Gold has been quite dramatically hit during the sell off. It is like a tide going out.''
Deficits
Still, Moore said gold may climb as U.S. trade and budget deficits weaken the dollar.
A widening U.S. deficit means more dollars need to be converted into foreign currency to pay for imports. It also indicates the dollar may need to weaken to make U.S. exports cheaper and imports more costly to close the gap.
A government report today is expected to show the U.S. trade deficit widened in April to $65 billion from $62 billion from March, according to a Bloomberg survey.
The U.S. current-account deficit, the broadest measure of trade, surpassed $800 billion in 2005 for the first time.
``Gold is a classic hedge,'' Moore said. ``Gold is being left like a jewel on the shore waiting to be picked up.''
Gold may reach $800 an ounce as the dollar weakens, he said.
The dollar traded at $1.2657 versus the euro. It's heading for the biggest weekly gain since November after Federal Reserve officials said inflation is a concern. Federal Reserve Chairman Ben S. Bernanke may reinforce the case for the bank to raise borrowing costs at a June 28-29 meeting.
Platinum rose $4.50 to $1,197.50 an ounce at 12:42 p.m. today, and silver gained 18 cents to $11.40 an ounce.
To contact the reporter on this story:
Julie Tay in London at jtay1@bloomberg.net
LINK: bloomberg.com |
