Gold's Appeal Wanes as Economy Slows, Inflation Concern Eases

BY

Gold's appeal is fading as a slowing U.S. economy and lower oil prices ease inflation concerns, reducing the metal's attraction as a hedge against rising consumer prices.

The percentage of traders expecting higher prices has fallen to 38 percent, the lowest in five weeks, based on a survey of 32 strategists and investors contacted by Bloomberg on Aug. 24 and Aug. 25 from Sydney to New York.

The percentage dropped from 51 percent a week earlier. Nineteen percent advised selling gold this week, and 44 percent were neutral.

Gold has plunged 14 percent from a 26-year high of $732 an ounce on May 12 as two years of interest-rate increases by the Federal Reserve started to curb the pace of U.S. economic growth. Oil prices are down 2.5 percent this month and yields on inflation-protected Treasury securities show inflation expectations have fallen from a one-year high on May 11.

With the economy slowing down, demand for metals is expected to slow down, too.

Gold may fall should central banks in Europe sell the metal before a Sept. 26 deadline. Under an accord known as the Washington Agreement, European central banks agreed to limit sales to 500 tons a year. They haven't reached the target yet.