Gold fell in New York as a stronger dollar cut investment demand for the precious metal. Silver sank.

The dollar climbed as much as 0.6 percent against the euro, touching a two-week high, as evidence economies have yet to shake off the worst effects of the global recession spurred demand for the safety of the U.S. currency. Gains in U.S. equities helped limit gold’s losses.

“Gold is looking at the dollar and the stock market for direction,” said Frank McGhee, Integrated Brokerage Services LLC’s head dealer in Chicago. “At this point, it could drop $25 or rally $25.”

Gold futures for December delivery fell $2.30, or 0.2 percent, to $991.80 an ounce at 11:04 a.m. on the New York Mercantile Exchange’s Comex division. Earlier, the price rose as much 0.1 percent and dropped as much as 0.8 percent.

Bullion for immediate delivery in London slipped 3 cents to $991.03.

The U.S. Dollar Index, a six-currency gauge, advanced as much as 0.4 percent while the Standard & Poor’s 500 Index fell as much as 0.4 percent. Before today, gold had rallied with stocks this year, gaining 12 percent as the S&P rose 18 percent. The dollar index fell 5.2 percent.

Before today, gold declined 3.1 percent from an 18-month high of $1,025.80 reached on Sept. 17. Futures set a record at $1,033.90 in March 2008.

Hesitant to Buy

“A certain hesitancy has emerged among fast money to buy gold at the moment, due to fears of excess long positioning in Comex gold futures and concerns about the sustainability of both dollar weakness and the broader trend of risk-asset growth,” John Reade, UBS AG’s head metals strategist in London, wrote in a note today. “We continue to expect a deeper correction in gold and silver in coming weeks.”

Bullion is heading for a ninth annual gain. Hedge-fund managers and other large speculators increased their bets on rising New York futures to a record in the week ended Sept. 22, the U.S. Commodity Futures Trading Commission said last week. Net-long positions gained by 1,102 contracts to 236,749 contracts.

Silver futures for December delivery slipped 2 cents, or 1 percent, to $16.175 an ounce in New York.

Source : bloomberg

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