Gold may extend its slide from a record as Europe’s sovereign-debt crisis spurs demand for dollars, eroding the appeal of the metal as an alternative, according to John Stephenson at First Asset Management Inc. The CHART OF THE DAY shows gold plunged 11 percent last month, the most since 2008, as Europe’s worsening fiscal crisis sent the U.S. Dollar Index to an seven-month high of 78.863 on Sept. 26. The precious metal, which reached a record $1,923.70 an ounce on Sept. 6, may drop to $1,450 by Dec. 15, while the dollar index rallies to 89, the highest since March 2009, said Stephenson, who helps manage $2.6 billion.
“The fear is Europe,” Stephenson said in a telephone interview from Toronto. “The dollar will go up significantly as we are seeing people liquidating other assets and buying the dollar and dollar-backed assets. Europe is nowhere near to finding a real solution.”
Gold has rallied 22 percent in the past year as investors shunned equities and some currencies. Prices have slumped 15 percent from last month’s high as investors sold the metal to cover losses in other markets. Gold futures for December delivery closed yesterday at $1,641.60 on the Comex in New York.
Hedge funds and other large speculators increased their net-long positions in the dollar to 128,155 contracts in the week ended Sept. 27, according to Commodity Futures Trade Commission data. Before last month, traders had been net short the dollar versus the yen, euro, Australian dollar, Swiss franc, Canadian dollar, British pound, Mexican peso and New Zealand dollar for 14 months.
Money managers cut bullish bets on gold for a third week and their holdings were the lowest since February, CFTC data as of Sept. 27 show.
