Gold falls for third day in Asia on rate rise worries


  • Business
  • Thursday, 08 Jun 2006

SEOUL: Gold prices in Asia fell for a third day on speculation the US Federal Reserve, the Bank of Japan and the European Central Bank (ECB) may raise interest rates, eroding the metal's appeal as an alternative investment. 

Gold has shed more than US$100 since reaching a 26-year peak of US$730.40 an ounce on May 12. Yesterday, the metal fell 1% after Fed chairman Ben S. Bernanke said on June 5 that gains in measures of inflation were “unwelcome''. 

Bank of Japan (BoJ) may increase rates for the first time in six years as borrowings rise. The ECB was expected to increase the interest rate a quarter point to 2.75% yesterday, according to all but one of 47 economists surveyed by Bloomberg. The dissenter predicted 3%. 

“Its not just the US – look at Japan, European Central Bank, everyone is indicating a rate hike,'' said Si Kannan, an analyst at Sharekhan Commodities Pvt, a Mumbai-based brokerage. “The next two days are crucial as the Bank of Japan and the ECB are scheduled to meet.'' 

Gold futures for August delivery fell as much as US$8.20, or 1.3%, to US$626.50 an ounce in after-hours electronic trade on the Comex division of the New York Mercantile Exchange.  

They traded at US$629 an ounce at 2:40pm Shanghai time. 

Just as the ECB was poised to raise interest rates for the third time in six months, finance ministers from France, Spain and Luxembourg said the euro's 8% advance against the US dollar this year risked removing a prop from the US$10 trillion economy by making exports more expensive. 

The ministers said they were growing more concerned that the euro's appreciation may start sapping the European economic expansion. 

“It is not a type of level we would like, but we have been living with a strong euro for a while,'' Spanish Economy Minister Pedro Solbes said yesterday at a meeting of European Union finance chiefs in Luxembourg. – Bloomberg

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