Gold Set for Worst Week Since February 2009; Palladium Slumps

May 21, 2010, 5:03 AM EDT

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By Nicholas Larkin and Kim Kyoungwha

May 21 (Bloomberg) — Gold dropped, heading for its biggest weekly loss since February 2009, as some investors sold to cover losses in other markets and lock in gains after a rally to a record a week ago. Palladium and platinum slumped.

Gold dropped this week as other commodities and equities tumbled. German business confidence unexpectedly fell after Europe’s debt crisis rattled financial markets, while growth in Europe’s services and manufacturing industries slowed more than economists forecast.

Gold “continues to suffer a lot as investors are forced to liquidate” positions to cover losses elsewhere, said Bernard Sin, head of currency and metals trading at bullion refiner MKS Finance SA in Geneva. “We think the market is very oversold. Bargain-hunters may come in and support prices” soon, he said.

Gold for immediate delivery lost as much as $16.05, or 1.4 percent, to $1,166.30 an ounce and traded at $1,175.25 at 9:28 a.m. in London. The metal is down 4.7 percent this week, the most since the five days to Feb. 27 last year. Bullion for June delivery was 1.1 percent lower at $1,175.10 on the Comex in New York.

The Reuters/Jefferies CRB Index of 19 raw materials dropped 1 percent to 250.07 yesterday to the lowest level since September. Oil futures are down 2.5 percent this week and the MSCI World Index of shares headed for a 5.5 percent weekly drop.

Gold rallied to an all-time high of $1,249.40 an ounce on May 14 and is headed for its 10th straight annual gain, the longest winning streak since at least 1920, as investors sought to protect their wealth from Europe’s financial turmoil.

‘Accumulating Gold’

“Long-term-oriented investors are still accumulating gold,” Eugen Weinberg, a Frankfurt-based analyst with Commerzbank AG, wrote in a report yesterday. The recent price slump “is probably attributable to profit-taking by speculative investors,” Weinberg said.

Assets in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, rose to a record 1,220.15 metric tons on May 19. The fund’s assets were unchanged yesterday, its website showed. Ten of 18 traders, investors and analysts surveyed by Bloomberg said bullion would climb next week. Six forecast lower prices and two were neutral.

Gold’s price ratios to platinum and palladium surged to their highest levels this year on concern the European debt crisis may hamper global growth, damping demand for the metals used in auto catalysts.

An ounce of gold bought as much as 0.8092 ounce of platinum today, and as much as 2.9532 ounces of palladium, the most since December 2009. Platinum and palladium are used mainly in catalytic converters, which curb emissions from automobiles.

Platinum for immediate delivery in London fell 1.8 percent to $1,485.75 an ounce, after dropping to $1,448, the lowest level since Dec. 31. Palladium plunged as much as 4.9 percent to $396.25 an ounce, extending this week’s losses to 25 percent, and was last at $410.25. Silver for immediate delivery lost 0.5 percent to $17.5725 an ounce.

–With assistance from Glenys Sim in Singapore. Editors: John Deane, Claudia Carpenter.

To contact the reporters on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net; Nicholas Larkin in London at nlarkin1@bloomberg.net.

To contact the editor responsible for this story: Stuart Wallace at swallace6@bloomberg.net.