Gold Drops Most in a Week on Strong Dollar


"U.S. economic data suggests a recovering economy, low inflation rate."

Gold fell the most in a week on speculation that the dollar will extend a rally, eroding demand for the precious metal as an alternative asset.

The greenback rose against the euro and the yen as U.S. economic data pointed to a recovering economy with a low inflation rate. The U.S. consumer-price index increased 0.1% in November. Before today, gold gained 28% this year, reaching a record $1,432.50 an ounce on Dec. 7.

"As economic activity looks to improve, that's going to strengthen the dollar and hurt gold," said Frank Lesh, a trader at FuturePath Trading LLC in Chicago. "The inflation numbers also took gold down a little bit. If you're buying these commodities to hedge against inflation, today's data didn't show that you were right in doing so yet."

Gold futures for February delivery fell $13.80, or 1%, to $1,390.50 at 11 a.m. on the Comex in New York. A close at that price would mark the biggest decline for the most- active contract since Dec. 8.

U.S. industrial production rose 0.4% in November, more than forecast, government data showed. Yesterday, the Federal Reserve kept its benchmark interest rate at zero% to 0.25% and maintained it will continue with a plan to buy back $600 billion in bonds through June.

"In an environment where central banks in the industrialized world are keeping interest rates low, gold can continue to compete aggressively for risk capital," analysts at Deutsche Bank AG said in a report.

Gold assets in exchange-traded products fell 4.83 metric tons to 2,091.56 tons yesterday, according to data compiled by Bloomberg from 10 providers. Holdings reached a record 2,104.65 tons on Oct. 14.

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