COMEX: Gold Down to $962.50

Gold is down approximately 2% in trading today, and reaching down toward $950. After having risen nearly a full hundred dollars in May, this weeks decline seems to indicate the market’s reluctance to see gold rise above the $1,000 barrier.

This end of the week’s decline comes as the result of larger funds taking advantage of the recent rise in gold values to thin out their inventories, and the recent change in the strength of the dollar.

However, with the rising concern over inflation hovering on the horizon, this price correction doesn’t seem to be anything other than in reaction to the short-term profit taking resulting from the recent steep incline in the price and the repositioning of portfolios which given the rise were seen to be overly heavy in precious metals.

Gold fell for a second day in Asia, dropping below $900 an ounce as a rally in the dollar curbed investors’ demand for the metal as an alternative investment.

Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, were at 1,104.45 metric tons for a third day yesterday. The Dollar Index, which tracks the greenback against six major trading partners, rose for a second day, after gaining as much as 1.3 percent yesterday, the most in a month.

Bullion for immediate delivery lost as much as 1.6 percent to $891.95 an ounce, and was at $898.47 at 1:41 p.m. in Singapore, extending yesterday’s 0.7 percent decline.

A retreat in crude oil also reduced gold’s appeal as a hedge against accelerating consumer prices. Crude fell for a second day on concern the swine-flu outbreak will curtail travel and stockpiles will climb as the U.S. economy contracts.

“The potential drop in air travel as nations around the world declared travel advisories against going to Mexico and even North America could reduce the demand for jet fuel, which in turn weighed on oil prices,” said Steel. “The drop in oil prices further undermined gold prices.”

The World Health Organization raised its global pandemic alert to the highest since the warning system was adopted in 2005, saying the swine flu is not containable. More than 150 people have died from flu in Mexico, where the first cases of the disease were discovered.

The amount of metal ETF Securities holds to back its London platinum and palladium exchange-traded commodities rose by 2.4 percent and 4.4 percent respectively in the week to last Friday, the company said.

ETF Securities’ platinum-backed ETC (PHPT.L) holdings rose just more than 8,000 ounces to 347,596 ounces last week, it said, while those of its palladium-backed product (PHPD.L) increased around 11,000 ounces to 261,973 ounces.

Exchange-traded funds, which issue securities backed by physical stocks of a particular metal, have represented a major source of demand for precious metals in recent years.

Holdings of ETF Securities’ largest gold-backed product, Gold Bullion Securities (GBSx.L) edged down by 14,595 ounces or 0.3 percent. However, its Physical Gold ETC (PHAU.L) picked up an additional 29,377 ounces or 1.1 percent.

Overall, the holdings of its three gold-backed products, which also include a small Australian fund, inched up 0.2 percent or 18,413 ounces to 7.395 million ounces.

Holdings of the company’s silver-backed ETC (PHAG.L) were up 400,000 ounces or 2.3 percent week-on-week to 17.539 million ounces, it said.

China has quietly almost doubled its gold reserves to become the world’s fifth-biggest holder of the precious metal, it emerged yesterday, in a move that signals the revival of bullion after years of fading importance.

Gold rose to a three-week high of more than $910 an ounce after Hu Xiaolian, head of the secretive State Administration of Foreign Exchange, which manages the country’s $1,954bn in foreign exchange reserves, revealed China had 1,054 tonnes of gold, up from 600 tonnes in 2003.

The news could spark interest in gold among other central banks. “When the largest holder of foreign exchange reserves discloses an increase in gold holdings, other countries may decide to think more carefully about underweight gold positions,” said John Reade, a precious metals strategist at UBS.

The increase in China’s gold reserves has come primarily from domestic production and refining. However, the news raises questions about the future of Beijing’s foreign reserves policy.

Ahead of the G20 summit in London this month, China suggested global reliance on the US dollar as a reserve currency should be reduced.

China has been diversifying away from the dollar since 2005, when it broke the renminbi’s peg to the US currency and officially marked it to a basket of currencies, but it still holds more than two-thirds in US dollar-denominated assets by most estimates.

As its trade surplus and forex reserves ballooned in recent years, Beijing continued to buy huge amounts of US Treasury bonds while raising the proportion of purchases it allotted to other currencies and to gold.

China’s accumulation of gold has taken place as European central banks have gradually cut back back gold sales following a 1999 agreement to prevent the market from being flooded after prices were dragged sharply lower after the UK decided to sell part of its reserves.

“China’s announcement signals a broader shift in central banks’ attitude towards gold,” said Philip Klapwijk, chairman of GFMS, the precious metal consultancy.

Paul Atherley, Beijing-based managing director of Leyshon Resources, said that even after the latest purchases China had a very small percentage of its reserves in gold, far below the US or other developed countries.