Gold slumps most in six weeks as inflation fears ebb

Tag : cut out metal

Gold fell the most in six weeks as slumping energy costs and astronger dollar cut demand for the metal as a hedge againstinflation. Silver also declined.

Crude-oil futures traded as low as $US124.34 a barrel, a 16%decline from a record reached on July 11. The dollar rose for asecond straight session to a two-week high against the euro. Beforetoday, oil jumped 69% in the past year while gold climbed 39%. Themetal reached a record $US1,033.90 an ounce on March 17.

``Investors are selling gold against the crude,'' said FrankMcGhee, the head dealer at Integrated Brokerage Services LLC inChicago. ``You've taken away the oil-inflation premium. We'reultimately blaming the short-term moves on oil because it'simpacting everything.''

Gold futures for August delivery dropped $US25.70, or 2.7%, to$US922.80 an ounce on the Comex division of the New York MercantileExchange. It was the biggest drop for a most- active contract sinceJune 10 and the lowest closing price since June 26. The metal lost1.6% yesterday.

Silver futures for September delivery fell 54.7 cents, or 3%, to$US17.458 an ounce. Most-active futures declined 7.2% in the pastfive sessions.

Investor demand for silver may pick up at current prices, accordingto analysts at Scotia Capital USA. The analysts said in a reportyesterday that a drop below $US17.50 may attract buyers.

Crude extended yesterday's 2.4% decline, falling to the lowest inalmost seven weeks as the Energy Department reported a weekly gainin US inventories of gasoline and distillate fuels, which includeheating oil and diesel.

Dollar rallies

A stronger US dollar also made oil, gold and other commodities lessattractive as an alternative investment. The dollar rallied onspeculation that US interest rates may rise later this year.

``When you have the dollar moving higher and oil moving lower, youhave pressure on the metals,'' said Marty McNeill, a trader at R.F.Lafferty Inc. in New York. ``Oil is impacting all markets. Oil iscoming down so drastically, it has brought gold and all thecommodities down.''

Futures show a 57% chance the Federal Reserve will raise itsbenchmark lending rate to 2.25% by Sept. 16, compared with a 23%chance a week earlier.

``Interest rates are going higher and that's a scenario for a dropin commodity prices,'' said Ron Goodis, a futures-trading directorat Equidex Brokerage Group Inc. in Closter, New Jersey.

Silver has gained 17% this year, while gold still is up 10%.

Bail-out speculation

Some investors sold gold on speculation that Congress may votetoday on a Treasury plan to rescue Fannie Mae and Freddie Mac, thebiggest providers of financing for US homes. Fannie Mae rallied asmuch as 27% in New York trading after dropping to a 17-year lowlast week. Major share indexes rose.