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Gold drops from six-month high on speculation rally is overdone

Gold prices in New York fell the most in almost a month on speculation a rally to the highest since August was overdone.

Gold rose 3.9% in January. The metal yesterday climbed to $667.20 an ounce, the highest in almost six months. Prices touched $603 on January 5. „Gold's up $50 on the year, so there'll be profit-taking,” said Frank Lesh, a trader at FuturePath Trading LLC in Chicago. „We're all getting rewarded for buying dips.” Gold futures for April delivery fell $11.50, or 1.7%, to $651.50 an ounce on the Comex division of the New York Mercantile Exchange. The percentage drop was the biggest since January 5. Prices climbed 80 cents this week, paring gains in the past three days. A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date. The seven-day relative-strength index for gold futures climbed to 79 on Thursday. A reading above 70 generally means traders expect prices to drop. The measure was at 75 the previous day. „Pulling some chips off the table is the name of the game,” said Jon Nadler, an investment-products analyst at Montreal-based Kitco Minerals & Metals Co. „Profit-takers are hitting the metal with one sell order after another.” A strengthening dollar also hurt gold. The metal, sold in dollars, generally moves in the opposite direction of the US currency, which gained the most against the euro in more than a week after a government report showed a revision in payroll numbers.

Employers added 111,000 non-farm workers to payrolls in January, compared with a revised 206,000 in the prior month. Average hourly wages rose 0.2%. A better-than expected payroll number released on January 5 triggered a 3.1% drop in gold prices that day. „The revision is what hurt the euro and gold,” said Jim Pogoda, an investor in Summit, New Jersey, and a former precious-metals trader for Mitsubishi International Corp. Gold gained 23% last year while the dollar dropped 10% against the euro. A decline in industrial metals also pushed gold lower. On the London Metal Exchange, zinc dropped as much as 12% and copper tumbled as much as 6%. The Wall Street Journal reported today that Red Kite Management Ltd.'s $1 billion metals-trading hedge fund lost 20% this year. The newspaper cited an unidentified investor who has seen the firm's results as of January 24. „Gold is being dragged down by the base-metals complex,” said Michael Guido, director of hedge-fund marketing at Societe Generale SA in New York. „It's primarily a base-metals fund. People are worried about the ramifications.” Still, gold may rebound as energy costs gain, the dollar weakens and turmoil in the Middle East disrupts financial markets, analysts said. „Now is the time to accumulate, particularly on any weakness,” said Adrian Day, president of Annapolis, Maryland- based Adrian Day's Asset Management, which has $113 million in assets. (Bloomberg)