Saturday, March 28, 2009

Gold, other commodities retreat as dollar advances

Gold prices retreated Friday, as a stronger dollar sapped demand for commodities.

Energy and agriculture futures also fell.

A resurgence of the dollar, which gained against the euro, the British pound and the Japanese yen, put pressure on commodities Friday. A weak dollar makes commodities cheaper in other countries, which can potentially boost demand. At the same time, demand for gold often increases when the dollar is weak since investors tend to use the yellow metal as a hedge against inflation.

James Steel, an analyst with HSBC in New York, said the dollar's advance against the euro was sparked by comments from the German finance minister that the 16-nation currency could be threatened if euro zone countries take on too much debt.

Gold prices have oscillated in recent days as investors weigh concerns about the long-term potential for inflation — which is a boon for gold — against economic data indicating that demand for goods of all kinds remains weak.

In Britain, economic output contracted 1.6 percent in the fourth quarter, more than expected, according to statistics released Friday. Meanwhile, in the U.S., the Commerce Department said consumer spending edged up a modest 0.2 percent in February, as expected. Personal incomes fell, however.

"The growth in prices is low, that's for sure," said Steel. "The deflationary pressures are likely to keep precious metals down."

Last week, gold surged after the Federal Reserve said it would buy up to $300 billion worth of long-term Treasurys and $1.25 trillion in mortgage-backed securities. That sent the dollar tumbling and rekindled fears about inflation.

Gold for June delivery dropped $16.90 to settle at $925.30 an ounce on the New York Mercantile Exchange. Prices finished the weak down 3.2 percent.

Other metals prices also fell. May silver fell 35.7 cents to $13.2630 an ounce, while May copper futures slipped 1.9 cents to $1.8360 a pound.

On Wall Street, stocks finished lower, but managed their first three-week advance of 2009. Analysts said the day's pullback was expected after the market's big climb this month. The Dow Jones industrial average fell 148 points to finish at 7,775 and the Standard & Poor's 500 index shed 16 points to 815.

Energy prices tumbled on the Nymex, as investors worried that oil's recent gains aren't sustainable amid lingering doubts about the economy.

http://www.iht.com/articles/ap/2009/03/27/business/NA-US-Commodities-Review.php

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