Gold has generally moved in lockstep with crude oil, which reached a two-month low today on signs gasoline demand is easing as the U.S. summer-driving season winds down. Before today, gold had climbed 23 percent this year, while oil gained 20 percent.
``You have to blame it on oil,'' said Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois. ``The market believes that inflation is going to be contained. The funds are losing their taste for commodities.''
Gold futures for December delivery fell $13.70, or 2.1 percent, to $625.30 an ounce on the Comex division of the New York Mercantile Exchange, the lowest since July 24. Prices are down 3 percent this week.
Silver futures for September fell 29 cents, or 2.4 percent, to $11.995 an ounce, the lowest in two week. Prices still are up 35 percent this year.
A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.
Demand for gasoline fell 1.7 percent last week, the biggest most since April, the U.S. Energy Department said yesterday. Gasoline futures have dropped 17 percent since Aug. 2 to the lowest in more than four months.
``Gold is a little weak with crude falling,'' said Billy Flahive, a partner at Island Trading Group in New York. ``That'll ease the effect of inflation.''
Lebanon
A cease-fire between Israel and Hezbollah eased concern that Middle East oil supplies might be cut. The United Nations plans to send 3,500 soldiers to southern Lebanon after more than a month of fighting.
``Tensions have eased overseas, so you don't have that factor supporting gold prices now,'' said Marty McNeill, a trader at R.F. Lafferty Inc. in New York.
Oil surged to a record $78.40 a barrel on July 14 on concern the conflict would spread in the Middle East, which pumps almost a third of the world's oil. Gold reached a two-month high of $677.50 on July 17 on speculation tensions would mount.
Traders who track the price spread between oil and gold say the precious metal is still low. Gold reached a record $873 in January 1980 when oil costs doubled in a year, sparking a surge in inflation.
In the 1970s, it took about 20 barrels of oil to buy an ounce of gold, said Dennis Gartman, gold trader, economist and editor of the Gartman Letter in Suffolk, Virginia. Now it takes about 8.8 barrels.
`Inordinately Cheap'
``This ratio has been trying to force a bottom over the course of two years, with gold inordinately cheap in relation to crude oil,'' Gartman said.
Gold may rebound on speculation the dollar will weaken. The metal usually moves in the opposite direction of the U.S. currency, which dropped for a third straight day as economic data signaled the Federal Reserve may not raise interest rates again this year.
The index of leading economic indicators unexpectedly dropped 0.1 percent in July, following a 0.1 percent gain in June, the Conference Board, a New York-based research group, said today. The index dropped at an annual rate of 1.4 percent in the past six months, the most since February 2001.
``This is a buying opportunity for gold and silver,'' Matt McKinney, a commodity broker at Infinity Brokerage Services in Chicago. ``Slowing economic growth in this country make gold look very attractive as a haven against the dollar.''
