Gold, sold in dollars, generally moves in the opposite direction of the U.S. currency, which advanced today on expectations interest rates in the U.S. will remain higher than Europe's. A drop in oil prices also reduced the metal's appeal as a hedge against inflation.
``With the stronger U.S. dollar and lower oil prices, gold's going to have a problem holding on to $600,'' said Mike Sander, a commodity broker at Altavest Worldwide Trading Inc. in Mission Viejo, California. ``There's less of an inflationary risk.''
Gold futures for December delivery tumbled $13.50, or 2.3 percent, to $582.90 an ounce on the Comex division of the New York Mercantile Exchange, the biggest percentage drop since Oct. 4. Prices still are up 24 percent from a year ago.
A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.
Interest-rate futures indicate a 12 percent chance the Fed will raise its benchmark rate to 5.5 percent from 5.25 at its Jan. 31 meeting, compared with a 46 percent likelihood of a cut signaled on Sept. 25.
The U.S. central bank halted a two-year cycle of raising rates at its August meeting. Gold is up 13 percent this year, and the euro has climbed 5.9 percent against the dollar.
Gold also fell as oil dropped for a second straight day on speculation the Organization of Petroleum Exporting Countries won't cut production as much as members had planned.
`Benign' Inflation Outlook
``The inflation outlook is fairly benign,'' said David Thurtell, an analyst at BNP Paribas in London. ``Investor demand will not be as strong as it has been.''
Gold has slumped 20 percent from a 26-year high of $732 an ounce in mid-May. Oil prices have dropped 25 percent from a record $78.40 in July.
Some investors buy gold when energy expenses climb. Gold futures reached a record $873 an ounce in January 1980 when oil costs doubled in a year, sparking a surge in the inflation rate.
Hedge-fund managers and other large speculators reduced their net-long position in Comex gold in the week ended Oct. 17 to the lowest in more than a year, Commodity Futures Trading Commission data showed on Oct. 20. Speculative long positions, or bets that prices will rise, outnumbered short positions by 61,259 contracts, down 1.9 percent from a week earlier.
``There seems little sign of investors and speculators wanting to rebuild long positions,'' John Reade, an analyst at UBS AG in London, said in a report.
