March 8, 2011 / 3:32 AM / 7 years ago

Gold drops below $1,430 on oil dip; Wall St up

NEW YORK (Reuters) - Gold dropped below $1,430 an ounce on Tuesday after the previous day’s record high, as easing crude oil prices and a Wall Street rally prompted investors to lock in recent gains.

Gold has risen about 10 percent in the last six weeks, as clashes in Libya and turbulence across the Arab world have encouraged investors to seek a safe haven, while oil has gained about 17 percent in the same period, increasing gold’s inflation hedge appeal.

“It’s profit-taking as we have a stronger dollar. Certainly, it’s a rotation out of the ‘long gold, long metal long energies’ trade, and stocks seem to be the beneficiary of it,” said Zachary Oxman, managing director of TrendMax Futures.

Bullion was dragged lower on oil’s pullback as OPEC considered boosting production for the first time in more than two years, The news sent U.S. stocks rallying over 1 percent, while the dollar rose against the euro for a second day on renewed euro zone debt worries.

Spot gold fell 0.2 percent to $1,427.54 an ounce by 2:30 p.m. EST (1930 GMT). U.S. gold futures for April delivery settled down $7.30 at $1,427.20, with volume lower than its previous sessions and about one-third below its 30-day average, preliminary Reuters data showed.


In the last year, the correlation between gold and oil has been largely erratic but in the last few trading sessions the positive link between the commodities have strengthened.


The correlation is expected to remain strong in the near term as tension escalate in Libya, with government forces attacking rebels with rockets, tanks and warplanes, intensifying their offensive to crush the revolt against Muammar Gaddafi.

Gold hit a record $1,444.40 an ounce and oil rallied on Monday but both oil and gold later retreated on speculation that Gaddafi might step down.

Gold’s failure to rise further indicated the precious metals complex will come under heavy pressure on any setback in oil prices, an analyst said.

“Despite the escalation of the unrest in Libya, gold has been struggling to gain a foothold above the old highs with some investors seemingly happy to lock in profit at these levels,” said Saxo Bank analyst Ole Hansen.

Oil prices are often seen as a leading indicator of risk perceptions in the oil-rich Middle East and North Africa region, so falling prices tend to suggest less need to hold gold as a haven from risk.


Silver fell 0.1 percent to $35.80 an ounce, a day after the metal climbed to a 31-year high on Monday.

On Tuesday, the gold/silver ratio remained under 40:1, the lowest since February 1998, and not far away from its weakest in the past three decades.

Eric Sprott, a hedge-fund manager, said silver is likely to keep outperforming gold. “I watch where the money goes and the money’s going into silver. There’s as much money going into silver as into gold in dollar terms,” he said.

Investors poured into precious metals investment products to seek a safe haven amid political and economic uncertainty.

Holdings of the world’s largest gold-backed exchange-traded fund, New York’s SPDR Gold Trust, rose for the first time since February 1 on Monday, by 6.7 tonnes.

Meanwhile holdings of the largest silver ETF, the iShares Silver Trust, rose to two-month highs of 10,898.14 tonnes, climbing 103.25 tonnes, their largest one-day rise since February 23.

Platinum lost 1.1 percent at $1,796.24 an ounce, and palladium dipped 0.3 percent to $783.72.

Additional reporting by Amanda Cooper and Jan Harvey in London; Editing by Lisa Shumaker

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