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Gold falls most in week as dollar gains erode investment appeal

Gold prices in New York fell the most in a week as a rally in the value of the dollar against the euro eroded the appeal of the metal as an alternative investment.

Gold often moves in the opposite direction of the dollar, which headed for a weekly gain against the euro after reports showed US durable goods orders and new home sales increased last month. The reports suggest economic growth is quickening and that the Federal Reserve won't have to cut interest rates. „Dollar strength that has been generated by the re- emerging concerns of a more vigilant Fed policy is triggering profit taking in gold,” said Michael Guido, director of hedge-fund marketing at Societe Generale SA in New York. Gold futures for April delivery dropped $3.70, or 0.6%, to $650.70 an ounce on the Comex division of the New York Mercantile Exchange, the biggest decline for a most-active contract since January 18.

Prices still are up 1.3% this week, heading for the third straight weekly gain. The dollar advanced to $1.291 euro at 1:59 p.m. in New York from $1.2931 yesterday, and is 0.4% higher on the week. It earlier touched $1.2878, the strongest since January 12. Gold climbed 23% last year as the dollar dropped 10% against the euro, increasing the appeal of the precious metal as an alternative investment to the currency. The metal will resume its advance because „the underlying fundamentals that are driving the price are all still there,” Newmont Mining Corp. CEO Wayne Murdy said in an interview in Davos, Switzerland. Gold-mine supply is in decline „longterm,” Murdy said. „The real story is the monetary characteristics. It's the inverse correlation that gold has to the dollar.”

The price of gold futures had climbed 8.5% from a two-month low of $603 on January 5 as rising oil prices stoked speculation that inflation will quicken, increasing the metal's appeal as an investment. Some investors buy gold as a hedge against rising consumer prices. Jewelers cut purchases by 16% last year as prices rose 23%, London-based research company GFMS Ltd. Said last week. India is the biggest buyer of the precious metal for use in jewelry. „The Indian market has slowed down without a doubt,” said Rhona O'Connell, managing director of GFMS Analytics Ltd., a London-based research venture of GFMS and ROC Consultancy Ltd. „The market has responded to the rising international price.” Declines in equities and currencies in emerging markets may cause investors to sell metals, said Robin Bhar, an analyst at UBS AG in London. „We believe that this event, if it occurs, will present good opportunities to buy precious metals at better levels,” Bhar said in a report. Gold for immediate delivery fell $1.35, or 0.2%, to $644.75 an ounce at 6:57 p.m. in London. (Bloomberg)