Gold Caps Worst Start to a Year Since 1997 as Investment Ebbs

By Pham-Duy Nguyen - Feb 1, 2011 4:04 AM GMT+0800
Source: Bloomberg

Gold fell in New York, capping the worst start to a year since 1997, on speculation that an improving economy will erode demand for the precious metal as an alternative investment.

Consumer spending in the U.S. rose more than forecast in December, ending the strongest quarter in more than four years, the Commerce Department said today. Holdings in exchange-traded products backed by bullion fell to 2,033.8 metric tons on Jan. 28, the lowest since June, according to data compiled by Bloomberg. Last year, gold rallied 30 percent, outperforming stocks and bonds.

“Gold succumbed to the much-anticipated correction on the improving outlook for the U.S. economy,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago.

Gold futures for April delivery dropped $7.20, or 0.5 percent, to settle at $1,334.50 an ounce at 1:33 p.m. on the Comex in New York. The metal slumped 6.1 percent in January, the biggest loss for the first month of the year since 1997. The commodity reached a record $1,432.50 on Dec. 7.
Prices fell this month as hedge funds and other money managers cut their bets on higher prices. In the week end Jan. 25, net-long positions dropped 3.6 percent to 129,664 contracts on the Comex, the lowest since May 2009, U.S. Commodity Futures Trading Commission data show.It was the fourth consecutive weekly drop, the longest decline since November.

Interest Rates

Last year, the Federal Reserve kept its benchmark interest rate at zero percent to 0.25 percent, helping send gold to a 10th straight annual gain. The Dow Jones Industrial Average is headed for the second consecutive monthly gain.

“A lot of late-comers to the game sold too early in January,” McGhee said. “Prices are at an attractive level for long-term holders to re-enter the market.”

Dennis Gartman, an economist and editor of the Suffolk, Virginia-based Gartman Letter advised clients to buy gold today after the metal bounced off the 150-day moving average, the fourth time that’s happened in the past year. The price fell to $1,309.10 on Jan. 28, near the key technical indicator, before rebounding.
It is time to return to gold now that it has corrected
“It is time to return to gold now that it has corrected,” Gartman said in his newsletter. He reduced his gold positions by two-thirds earlier this month.

China Reserves

China should increase its gold and silver reserves, the Economic Information Daily reported today, citing an interview with central bank adviser Xia Bin.

Silver futures for March delivery rose 25 cents, or 0.9 percent, to $28.169 an ounce on the Comex. The metal fell 8.9 percent in January, the first monthly drop since July.

Palladium futures for March delivery added $3.10, or 0.4 percent, to $820.10 an ounce on the New York Mercantile Exchange. The metal rose 2.1 percent in January, the seventh straight gain. Platinum futures for April delivery declined $4.10, or 0.2 percent, to $1,800.90 an ounce, capping a 1.3 percent monthly gain.

To contact the reporter on this story: Pham-Duy Nguyen in Seattle at
To contact the editor responsible for this story: Patrick McKiernan at
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