Gold declines as rally to record spurs investment

Gold's 14-day relative-strength index has topped 70 since Nov. 13, a signal that prices may drop. Holdings in 16 exchange- traded gold products tracked by Barclays Capital fell 0.3 metric ton on Nov. 27, the first decline since Nov. 20.

“It's very small compared to drops in the past,” said Suki Cooper, an analyst at Barclays Capital in London. “This is just a little profit taking.”

Gold for immediate delivery fell US$11.50, or 1 percent, to US$1,166.13 at 10:15 a.m. local time, down 2.4 percent from the all-time high of US$1,195.13 on Nov. 26. Prices are up 12 percent this month, the biggest monthly gain in a year. February- delivery gold futures dropped 0.8 percent to US$1,166.40 an ounce on the Comex division of the New York Mercantile Exchange.

Prices for spot gold slumped as much as 4.2 percent on Nov. 27 after Dubai's efforts to reschedule its debt rattled investors.

Gold, up 33 percent this year, is set for a ninth annual gain as central banks, pension funds and individual buyers bought precious metals as a hedge against declines in the dollar and possible inflation. UBS AG recommended an increase in commodity allocations for 2010. “The prospect of higher policy rates undermine the case for government bonds, nominal and inflation-linked,” UBS said in a statement e-mailed Monday.

Among other precious metals for immediate delivery, silver fell 0.9 percent to US$18.1325 an ounce, platinum declined 0.1 percent to US$1,439.40 an ounce and palladium dropped 0.7 percent to US$362.25 an ounce.

“We did see a lot of money leave the market” last week, said Manqoba Madinane, an analyst at Standard Bank Group Ltd. in Johannesburg. “Some of it is back, but not all of it. I think we have a situation where people are buying as soon as the metal moves lower.”

The United Arab Emirates' central bank said yesterday it “stands behind” the country's local and foreign banks. The dollar fell against the euro Monday after rising in the previous two sessions. Gold usually moves in the opposite direction of the dollar.

“If we do see more flight to safety to the U.S. dollar then we could see commodity prices under some pressure,” said Toby Hassall, an analyst with CWA Global Markets in Sydney.

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