Gold drops with silver on speculation U.S. economy is improving

Gold fell in London as speculation the U.S. economy is strengthening curbed demand for a protection of wealth. Silver declined.

The dollar was little changed after gaining as much as 0.4% against six major currencies before U.S. data today that economists say will show consumer confidence improved and home prices gained. The U.S. Dollar Index reached the highest since 2010 on May 23. Gold exchange-traded product holdings are set for a fifth monthly drop. Central banks including Russia and Kazakhstan added gold to reserves in April, International Monetary Fund data showed.

“The two-pronged influence of ETF selling and a stronger U.S. currency is the largest headwind facing any recovery in price,” analysts at Morgan Stanley wrote today in a report. “Should either of these trends ease, physical demand via jewelry sales and central bank buying could provide key support.”

Gold for immediate delivery fell 1% to $1,380.15 an ounce by 12:51 p.m. in London. Prices rose 0.6% yesterday, extending last week’s 2% gain that was the most in a month. The metal is down 6.5% this month. Bullion for August delivery was 0.6% lower at $1,379.40 on the Comex in New York.

Floor trading was closed in New York yesterday because of the Memorial Day holiday, and yesterday’s transactions will be booked with today’s trades for settlement purposes. Futures trading volume was more than double the average in the past 100 days for this time of day, according to data compiled by Bloomberg.

Dollar Rallies

Gold has slumped 18% this year, while the dollar rallied 5% against the six-currency basket on speculation the Federal Reserve may scale back quantitative-easing measures that helped bullion cap a 12-year bull run in 2012. Raising interest rates or curbing bond buying too soon would endanger the recovery, Fed Chairman Ben S. Bernanke said last week. He also said the pace of bond purchases could be reduced in the next few meetings if the jobless rate keeps dropping.

“As prospects for the U.S. economy remain positive, expectations are for a withdrawal of QE, supporting the dollar and weighing on gold,” said Feng Liang, an analyst at GF Futures Co. in Guangzhou, a unit of China’s third-biggest listed brokerage. “The initial wave of physical demand after the big price drop has eased and purchases tend to slow down as the price approaches $1,400.”

Shanghai Volume

The volume for the Shanghai Gold Exchange’s benchmark cash contract shrank to a two-week low of 10,094 kilograms yesterday. It had risen to a record after gold dropped to a two-year low of $1,321.95 last month. Holdings in exchange-traded products fell to 2,158.4 metric tons on May 24, the lowest since June 2011, according to data compiled by Bloomberg.

Silver for immediate delivery slid 1.5% to $22.3463 an ounce in London, extending this month’s drop to 8.2%. Palladium was 0.9% lower at $731.18 an ounce, cutting May’s gain to 4.6%. Platinum was little changed at $1,451.60 an ounce and is down 3.6% this month. While gold slumped and silver plunged 26% this year, platinum lost 5.7% and palladium rose 3.9%.

Holdings in platinum-backed ETPs, up 34% this year, reached a record 62.5 tons on May 24, according to data compiled by Bloomberg. Assets in palladium products gained 16% this year to 66.9 tons. Platinum will end the year at $1,690 and palladium will climb to $800, according to the medians of 15 analyst estimates compiled by Bloomberg earlier this month. Both metals are mainly used in car autocatalysts.

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