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Gold Drops 1.2% in Week, Snapping Five-Week Rally on Lower Oil
By Choy Leng Yeong and Claudia Carpenter
Nov. 17 (Bloomberg) -- Gold in New York dropped 1.2 percent this week, ending a five-week rally, after declining energy costs reduced the appeal of the precious metal as a hedge against inflation.
Crude-oil prices fell to a 17-month low today as warm weather in the northern U.S. reduced fuel consumption, and a consulting company said shipments by the Organization of Petroleum Exporting Countries will climb. Gold has dropped 15 percent from a 26-year high of $732 an ounce in May, and oil has tumbled 29 percent from a record $78.40 a barrel in July.
``I'm bearish on gold,'' said Ronald Goodis, retail trading director at Equidex Brokerage Group Inc. in Closter, New Jersey. ``Oil has broken down severely. There's expectation for a mild winter. If that occurs, prices will go down even more.''
Gold futures for December delivery were little changed at $622.50 an ounce on the Comex division of the New York Mercantile Exchange. Prices climbed 9.2 percent in the past five weeks and were up 20 percent this year.
A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.
Oil futures for December delivery fell 36 cents, or 0.6 percent, to $55.90 at 1:45 p.m. New York time on the Nymex. Prices earlier fell as much as 2.1 percent.
The drop in oil has reduced the appeal of gold, said Peter Fertig, a director of debt asset allocation and commodities at Dresdner Kleinwort in Frankfurt. Commodities should represent only close to 5 percent of assets for the rest of the year, he said. The company had recommended a range of 5 percent to 10 percent.
Gold futures still headed for the sixth straight annual gain amid declines in mining output and increased investment demand. Purchases of gold through exchange-traded funds, or ETFs, rose to 16.9 million ounces from 15.8 million on Oct. 30, figures from the World Gold Council show.
``The fact that gold is down a few bucks one day doesn't really phase me in the slightest,'' said Graham Birch, who helps manage about $6 billion in gold equities at Merrill Lynch & Co. in London. ``Investment demand for gold in the ETF seems to be very steady.''
Prices will probably end this year ``a little better'' than today, Birch said