Gold Set for Biggest Weekly Drop in 25 Years on Dollar, Shares

By Glenys Sim

Oct. 24 (Bloomberg) -- Gold slumped for a fourth day in Asia and headed for its biggest weekly drop since 1983 as the rising dollar and a plunge in equities curbed investor demand for the precious metal.

Gold is down more than 10 percent this week as the dollar jumped to a two-year high against the euro and the Standard & Poor's 500 Index fell to a 5 1/2-year low. Investment in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, has stalled after reaching a record 770.6 tons on Oct. 10. Holdings fell to 747.1 tons, the trust's Web Site said.

``The decline in the gold price is not only linked to a further strengthening in the U.S. dollar but also evidence that physical buying of gold via ETFs is beginning to fade,'' Deutsche Bank AG analysts led by Michael Lewis wrote in a report e-mailed today. Given the appreciation in the dollar, ``we estimate fair value for gold to be $600-$620 an ounce.''

Gold for immediate delivery fell 2.7 percent to $701.66 an ounce at 4:19 p.m. in Singapore after earlier rising as much as 1.1 percent. The metal fell below $700 yesterday for the first time since September 2007. Silver for immediate delivery fell 6.3 percent to $9.07 an ounce.

``The worst culprit is the greenback which continues to test the $1.2750 level against the euro, searching for a break lower,'' Walter de Wet, analyst at Standard Bank Ltd., in Johannesburg, said in a report today. The dollar rose to $1.2713 versus the euro at 3:19 p.m. in Singapore from $1.2934 yesterday.

Yen Gains

The Japanese yen climbed to a 13-year high against the dollar as the risk of a global recession prompted investors to pare carry trades, in which they fund purchases of higher- yielding assets with Japanese currency.

The U.S. dollar fell to 95.15 yen from 97.31 yen late yesterday. The yen may strengthen 8 percent by March 2009 to 90 yen per dollar as investors dump higher-yielding assets funded in Japan and bring cash home, according to Barclays Capital.

Gold for December delivery fell 2.2 percent to $698.70 an ounce in after-hours electronic trading on the Comex division of the New York Mercantile Exchange.

Stronger yen made the yen-denominated gold futures in Tokyo less appealing. Gold for August delivery in Tokyo dropped 5.3 percent to 2,141 yen a gram ($700 an ounce) at 4:22 p.m. local time.

To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net

Last Updated: October 24, 2008 04:28 EDT