Gold Falls for Third Day in New York as Dollar Strengthens

June 28 -- Gold prices fell for the third straight day in New York as the dollar climbed against the euro, eroding the precious metal's appeal as an alternative asset.

Gold, which often moves in the opposite direction of the dollar, has dropped 21 percent from a 26-year year high of $732 an ounce on May 12. The U.S. currency rose today on speculation the Federal Reserve will signal the potential for more interest-rate increases to contain inflation. Rate futures show traders are sure the Fed will lift its benchmark a quarter-point tomorrow.

``I'm looking for gold to take a dip after the Fed raises rates,'' said Mike Sander, a commodity broker at Altavest Worldwide Trading Inc. in Mission Viejo, California. ``The Fed is most likely to increase the value of the dollar.''

Gold futures for August delivery fell $3.40, or 0.6 percent, to $581 an ounce on the Comex division of the New York Mercantile Exchange. The metal has dropped 1.2 percent this week. Futures still have gained 33 percent in the past year.

A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.

The dollar has risen 3.3 percent against the yen and 2.3 percent versus the euro since the end of May as Fed officials signaled the need for more rate hikes.

Interest-rate futures indicate an 83 percent chance of another quarter-point increase in rate in early August. That was up from zero percent at the start of the month.

``A lot depends on market perception,'' said Jim Pogoda, an investor in Summit, New Jersey, and a former precious-metals trader for Mitsubishi Ltd. ``If the markets feel the Fed has or will overdo rate rises, then the dollar should rise and pressure gold lower. If the markets feel the Fed is behind the curve and losing credibility to contain inflation, then gold should benefit.''

Gold reached $873 an ounce, the highest ever, in 1980 after oil costs doubled in a year and consumer prices rose 12 percent.

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Gold and silver rose in Asia as some investors bet the U.S. Federal Reserve may be nearing the end of its series of interest rate rises, boosting the precious metal's appeal as an alternative asset.

The Fed is expected to raise interest for a 17th straight time at the end of a two-day meeting starting today, and again in August. Some investors may be betting the central bank won't raise rates more than once or twice more on concern it will slow economic growth, ScotiaMocatta's Alastair McIntyre said.

``Gold has been closely following the Fed watch, and if people think the chance of further rates hike will lessen, then gold could go higher,'' said McIntyre, ScotiaMocatta's head of marketing, by phone from Hong Kong. ``But the market is now basically watching for the meeting.''

Gold for immediate delivery rose as much as $5.95, or 1 percent, to $585.01 an ounce. It traded at $582.84 at 11:08 a.m. Mumbai time.

Gold has fallen 20 percent since touching a record $730.40 on May 12, partly on concern the Fed will increase interest rates to contain inflation. Rising rates strengthen the dollar and make it more expensive for investors to borrow to buy gold.

Interest-rate futures show traders see 100 percent odds the Fed will boost its benchmark rate a quarter-point to 5.25 percent tomorrow. The futures indicate an 83 percent chance of another quarter-point move in August. They show traders see no chance of the Fed raising borrowing costs beyond August.

`Second-Guessing'

``The market could be second-guessing the Fed that U.S. inflation isn't doing that badly, and that a rate rise would be sufficient,'' said Peter McGuire, managing director of Commodity Warrants Australia in Sydney.

Gold tends to trade counter to the dollar, and has risen 13 percent this year compared with a 6 percent decline of the dollar against the euro. The dollar will decline to $1.30 per euro by the year-end, according to the median estimate of 32 analysts surveyed by Bloomberg. Against the euro, it fetched $1.2574 at 10:58 a.m. in Mumbai from $1.2577 yesterday.

Silver for immediate delivery rose as much as 21 cents, or 2.1 percent, to $10.37 an ounce. It traded at $10.28 at 11:09 a.m. Mumbai time.

Gold for August delivery rose as much as $2.50, or 0.4 percent, to $586.90 an ounce in after-hours trade on the Comex division of the New York Mercantile Exchange. The contract traded at $585.40 at 10:54 a.m. Mumbai time.

``I would expect gold to remain range-bound today as its very important to get a clear indication from the Fed what its future stance will be,'' Kishore Narne, head of research at Mumbai-based Anand Rathi Commodities, said today.

In India, the world's biggest gold consumer, gold prices for August delivery rose 5 rupees, or 0.1 percent, to 8,827 rupees per 10 grams, or 27,452 rupees ($592) per ounce, at 10:50 a.m. on the Multi Commodity Exchange of India Ltd. in Mumbai.