Gold Drops for a Fourth Day as Oil`s Fall Curbs Inflation Risk

Gold prices declined for a fourth straight day as a drop in energy costs reduced the metal's appeal as a hedge against inflation.

Oil slumped 2.5 percent yesterday on speculation U.S. fuel supplies are adequate to meet late-winter heating demand. Gold, which some investors buy as a store of value when the rate of price gains accelerates, often moves in tandem with oil prices.

“Oil's decline put pressure on gold prices,” said Hiroyuki Kikukawa, associate director of research at futures broker Nihon Unicom Corp. in Tokyo. Some gold investors were now “taking a wait-and-see stance.”

Gold for immediate delivery fell as much as $1.45, or 0.2 percent, to $642.25 an ounce, and traded $642.55 at 1:53 p.m. in Singapore. The metal traded as high as $649.25 on Jan. 24.

Crude oil for March delivery was little changed at $54.08 a barrel, up 7 cents, in after-hours electronic trading on the New York Mercantile Exchange at 1:07 p.m. in Singapore. The contract fell $1.41 to $54.01 yesterday, the lowest close in a week.

A U.S. Energy Department report tomorrow will probably show the nation's above-average oil stockpiles rose for a third week as refining activity stalled at a two-month low, according to a Bloomberg News survey of 11 analysts.

Gold for April delivery on the Comex division of the New York Mercantile Exchange fell as much as $1.30, or 0.2 percent, to $647.80 an ounce. The contract traded at $648.50 at 1:52 p.m. in Singapore.

In Japan, gold for delivery in December 2007 declined 13 yen, or 0.5 percent, to 2,535 yen a gram ($648 an ounce) on the Tokyo Commodity Exchange at 2:08 p.m. in Tokyo.

Silver gained 3 cents to $13.21 an ounce, palladium fell $1.50 to $338.50 an ounce and platinum was up $5.50 to $1,169.50 an ounce.

Dollar Gains
Gold's weakness was also attributed to the dollar's strength, said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures Ltd. in Tokyo.

The Japanese yen traded at 121.75 per dollar at 1:02 p.m. in Singapore from 121.74 in New York yesterday, when it touched 122.19, the lowest in more than four years. Europe's single currency was at $1.2960 from $1.2957.
Gold usually moves in the opposite direction to the dollar as some investors use the bullion as an alternative asset to store value, instead of dollar-denominated stocks and bonds.

“Gold will see some heavy pressure approaching the $650- an-ounce level,” said Emori. “From the currency point of view, sentiment over the U.S. dollar is better than last year.”

A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.

Markets in India, the world's largest gold consumer, were closed today for a public holiday. Bloomberg