Gold Falls as High Price Erode Jeweler Demand; Silver Declines
By Pham-Duy Nguyen
May 9 (Bloomberg) -- Gold in New York fell the most in a week on speculation that this year's price rally in bullion will slow demand from jewelers and investors. Silver also declined.
Purchases from India, the biggest buyer, may slow after gold climbed to an 11-month high on April 20, analysts say. Investment in the StreetTracks Gold Trust, an exchange-traded fund backed by the precious metal, has dropped 3 percent to 486 metric tons from a record on April 17. Gold is still up 7 percent this year.
Indian buyers are ``unwilling to pay these elevated prices,'' Jon Nadler, an investment-products analyst at Montreal-based Kitco Minerals & Metals Co., said in an e-mail today. ``Their expectations of being able to buy gold cheaper are probably realistic.''
Gold futures for June delivery declined $4.90, or 0.7 percent, to $682.50 an ounce on the Comex division of the New York Mercantile Exchange, the biggest decline for a most-active contract since May 1.
Jewelry demand, which accounts for about 70 percent of gold purchases, dropped 17 percent last year as gold climbed to a 26- year high of $732, London-based researcher GFMS Ltd. estimates. Jewelry demand from India, which is responsible for about 26 percent of global gold purchases, dropped 14 percent last year.
Stable Prices
Jewelers tend to buy when prices stabilize. Last week, gold touched a one-month low of $670 on May 2 before climbing as high as $693.20 two days later. The historical volatility of gold futures, or the rate at which a price moves up and down, was at 11.3 percent for the past 10 days. A month ago, the rate was 9.7 percent from the previous 10-day period.
``Generally, the jeweler doesn't like to buy on the rally unless it's been around for a while,'' said Frank McGhee, head metals trader at Integrated Brokerage LLC in Chicago.
A drop in crude oil to a seven-week low also pushed gold below $685, a price at which some traders had determined was a sell signal, said Marty McNeill, a trader at R.F. Lafferty Inc. in New York. Some investors buy gold when oil climbs to hedge against inflation.
``Gold looks tired,'' McNeill said. ``It's a technical breakdown and investors are not going to hang in there when gold's losing money.''
Chinese Stocks
Investors also sold gold in anticipation of a correction in Chinese stock market, which rose to a record today. A plunge in Chinese stocks on Feb. 27 triggered $3.3 trillion in global equity losses and sent gold down almost 7 percent in five days as investors sold bullion to raise cash.
``The selling is anticipatory,'' Integrated's McGhee said. ``Gold and silver have been used to raise dollars before so the market is pricing in a correction in the Chinese market.''
Silver for July delivery dropped 13 cents, or 1 percent, to $13.47 an ounce on the Comex. The metal has underperformed gold this year, climbing only 4.1 percent. Last year, silver rose 46 percent while gold climbed 23 percent.
Dennis Wheeler, the chief executive officer of Coeur d'Alene Mines Corp., the biggest U.S. producer of silver, said he was still bullish on the metal.
``Industrial demand for silver is going to steadily grow in the coming years,'' Wheeler said today on a conference call with analysts and investors. The Coeur d'Alene, Idaho-based company yesterday reported a 2.2 percent drop in first-quarter profit.
A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net .
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