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Gold falls on speculation price swings will discourage buyers

Gold fell in London on speculation that price swings in the metal will discourage demand from jewelers, the biggest buyers of the metal.

Gold traded in India, which accounts for a quarter of global jewelry consumption, yesterday rose above 30,000 rupees ($678.04) an ounce for the first time since August, from a two-week low the day before. Consumption worldwide fell in the first nine months of last year as the metal surged to a 26-year high and then had the longest drop in almost two years. „At these prices, demand would have been hit quite significantly on the jewelry front,” said Philip Newman, a senior metals analyst at GFMS Ltd., a London-based research company.
„You would need to have stability and demand may start to come back slowly.” Gold for immediate delivery declined $2.30, or 0.3%, to $676.55 an ounce at 9:51 a.m. London time. Prices yesterday rose $21.60, or 3.3%, the biggest gain since June 29. The 10-day volatility of gold or the rate at which a price moves up or down, was at 23% yesterday, compared with 11% a week ago.
Gold peaked at $730.40 in May and then dropped for five consecutive weeks, the longest decline since May 2004. Global demand in the Q4 rose for the first time since 2005, the producer-funded World Gold Council said last week, citing figures from GFMS. In Japan, gold for delivery in December 2007 gained the daily limit of ¥60, or 2.3%, to ¥2,635 a gram ($677 an ounce) on the Tokyo Commodity Exchange, the highest since September 1985.

Tokyo futures have been supported by a weaker yen, which makes the yen-denominated contract more attractive than overseas gold priced in dollars. The yen had its biggest slide since December 8 against the dollar yesterday and is trading near a record low against the euro. Japanese investors also buy bullion when their currency weakens in a bid to hedge against an erosion in the value of their yen-denominated assets, such as stocks.
„The Japanese have been very cautious of the inflationary picture that is building in Japan,” said Darren Heathcote, head of trading at Investec Bank (Australia) Ltd. „If the yen weakens much further it could be reason for the Japanese to start buying again.” Silver dropped 2 cents to $14.205 an ounce. Palladium was little changed at $344.75 and platinum fell $3.50 to $1,224. (Bloomberg)