Gold slid more than 3 percent in Europe on Monday as the strengthening dollar knocked the metal’s appeal as a currency hedge, and oil prices retreated from highs.

Other precious metals tumbled in gold’s wake, with silver falling 8 percent, platinum 3 percent and palladium 6 percent.

Spot gold was quoted at $851.65/853.65 an ounce at 1445 GMT, down from $873.20 an ounce late in New York on Friday, having touched a session low of $843.50.

U.S. gold futures for February delivery on the COMEX division of the New York Mercantile Exchange were down $26.60 at $852.90 an ounce, having earlier touched a low of $843.50.

“The dollar is the critical factor today,” said BNP Paribas analyst Michael Widmer.

The U.S. currency extended gains against the euro to a fresh three-week high on Monday on hopes U.S. President-elect Barack Obama will unveil fresh measures to boost the economy.

Obama is due to meet House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid later in the session to discuss their legislative agendas.

Obama officials have been discussing an economic stimulus bill in the range of $675 billion to $775 billion.

The euro has also been battered by poor Italian and Spanish inflation data and tax cuts in Germany, which are expected to add pressure on the European Central Bank to cut interest rates soon.

“Gold’s move in the last couple of days is almost entirely due to the strength of the dollar,” said UBS commodity strategist John Reade. “The number one, front centre driver of the dollar gold price is where euro-dollar is going.”

The euro-dollar exchange rate “moved sharply higher in December and has come off in the first couple of trading days of this year,” he added. “It has dragged gold with it.”

The precious metal had found good support in early trade as oil prices rose nearly 3 percent after an Iranian military commander called for an oil boycott over Israel’s offensive in the Gaza Strip.

However, it has slipped as oil gave up those gains.

Gold usually moves in line with oil prices, both because firmer crude boosts interest in the precious metal as a hedge against oil-led inflation and increases the appeal of commodities as an asset class.

JEWELERY BUYING SOFT

Demand for gold jewelery has been hit by the higher prices. Sales in Abu Dhabi fell 40 percent in December from a month before, the emirate’s industry group said.

Gold buying in India, the world’s largest market for the precious metal, has been crimped by higher prices, traders said.

“People would want to buy if prices fall below 12,500 rupees,” said Mayank Khemka, managing director of Delhi-based Khemka International. Prices are currently around 13,500 rupees.

Among other precious metals, silver slipped in line with gold to a low of $10.54, before recovering to $10.86/10.94 an ounce from $11.52 late on Friday.

Platinum and palladium also fell, with both metals suffering from expectations demand from car makers will continue to fall.

France and Japan posted steep falls in December car sales on Monday, while U.S. auto sales numbers are due later in the session.

Automakers are responsible for around 50 percent of global platinum and palladium demand.

Platinum eased to $925.50/935.50 an ounce from $944, while palladium dipped to $182/187 an ounce from $190.

LONDON, Jan 5 (Reuters)

Gold edged down on Friday as the dollar firmed against the euro, but trading was quiet as investors awaited the outcome of OPEC’s production meeting this weekend and a spate of data due next week for fresh impetus.

Spot gold was quoted at $810.00/812.50 an ounce at 1310 GMT, down from $814.60 an ounce late on Thursday, as the firmer dollar dented interest in the metal as a currency hedge.

The euro slipped after data showed falling inflation in the euro zone, boosting expectations the European Central Bank will cut interest rates further. [ID:nLS548735]

Falling oil prices are also doing little to help gold, which typically moves in line with crude. Traders are awaiting the outcome of this weekend’s meeting of the OPEC oil cartel, at which production cuts will be discussed. [ID:nSP342706]

“Obviously there is still a correlation between oil and gold,” Wolfgang Wrzesniok-Rossbach, head of sales at Heraeus, said. “If OPEC make a decision which might drive the oil price up, that would also be positive for gold.”

Despite the gold price dip, the precious metal is heading for its biggest monthly gain in nine years as investors spooked by the outlook for the global economy buy into the metal as a haven.

Prices have climbed some $90 an ounce, or 12 percent, this month. Gold is also up 12 percent in euro terms, and 15 percent in terms of the Australian dollar.

“Investment (in gold) is strong because there is huge concern over the economic and financial environment, both in the short and possibly the longer term,” RBS Global Banking & Markets metals strategist Stephen Briggs said.

“The measures being taken to stabilise the situation may lead to inflationary fears down the road, so gold has a double benefit from that.”

Gold is typically seen as a hedge against inflation.

DATA

Traders will also be watching for a raft of economic data due out next week, which could have a significant impact on the dollar. U.S. auto sales are due out on Tuesday, and U.S. non-farm payrolls on Friday.

“Next week, manufacturing indices for all major economies will be released,” Standard Bank analyst Walter de Wet said. “This should indicate the speed at which manufacturing is contracting globally.”

Dresdner Kleinwort said on Friday it expects gold prices to average $870 an ounce this year, falling to $740 an ounce in 2009. For silver, it forecasts an average price of $15 an ounce in 2008 and $9.75 next year.

But Wrzesniok-Rossbach at Heraeus said delegates at a forum on Thursday organized by the precious metals group expected gold prices to hit new highs next year.

“Consensus was that in the long run all the bailouts we are seeing, whether in the car industry, the banking industry or others … will (create) inflation, and that would be positive for gold,” he said.

Among other precious metals, spot platinum was quoted at $860.50/880.50 an ounce, slightly up from $853 late on Thursday. Palladium was at $184/192 an ounce against $187.50.

Silver was at $10.12/10.20 an ounce against $10.31 an ounce.

The industrial precious metals have suffered more from the economic downturn than gold, with platinum and palladium, which are chiefly used in catalytic converters, both dropping significantly from their summer highs.

By Jan Harvey
LONDON, Nov 28 (Reuters)

The core inflation rate, however, which excludes volatile food and energy prices, only rose 0.2%, easing fears that rising commodity prices would feed into more widespread inflation

But can the government’s inflation data be trusted? John Brown in The Daily Reckoning doesn’t think so…

Perhaps, the greatest area of concern about statistical manipulation is the measurement of inflation, or Consumer Price Index (CPI). By manipulating this single statistic the government can miraculously transform rising prices into economic growth.

The Department of Labor has set so-called “core” inflation, excluding food and energy, at 2.2%. Even “headline” inflation, including food and energy, is published officially at only some 4%. The problem is that these figures bear very little relation to the reality of price increases experienced on Main Street, which some estimate to be in excess of 10%.

Statisticians assign different weights to the elements comprising the CPI that are often not reflective of the spending habits of ordinary citizens. For example, housing maintenance (including heating oil), a major expenditure, is given only a small part in the Index’s makeup. In addition, the re-pricing of items such as automobiles to allow for added “hedonistic” features such as enhanced “value for money” is wide open to varying judgments. How these statistical decisions are made is really anyone’s guess. But it is absurd to assume that the government’s overwhelming interest in reporting low inflation does not influence the final numbers.

The financial consequences for investors can be severe. For example, the Dow Jones Industrial Average Index, against which many investment returns are measured, closed at a nominal high of 14,093 on Oct. 12, 2007. The media reported it as a sign of good things to come. On May 23, 2008, the Dow closed at 12,480 – off a bit, but apparently not too bad. But if that day’s close is adjusted for the official CPI, then it’s not worth 12,480, but only 9,856 when compared with its previous market cycle high, of 11,723, in the year 2000.

Worse still, if adjusted for the more likely but still conservative inflation rate of 8%, the recent close of 12,480 becomes the equivalent of only 6,742 in the year 2000. What looks like a nominal gain of some 757 points or 6.4% is, in fact, a real loss of 4,981 points or some 42% over those eight years!