By Nicholas Larkin and Kim Kyoungwha Dec. 8 (Bloomberg) -- Gold dropped for a third day in New York as a rebounding dollar curbed the metal’s appeal as an alternative investment. The dollar gained as much as 0.7 percent against the euro after yesterday climbing to a one-month high. Gold typically moves inversely to the dollar and has added 30 percent this year as record-low Federal Reserve interest rates contributed to the currency’s 5.3 percent drop. Some central banks have bought bullion, helping to push prices to a record last week. “Some investors will use it as a good opportunity to buy on dips,” Andrey Kryuchenkov, a VTB Capital analyst in London, said of the drop in a report. The current slide is “very healthy” and will enable gold to build “a good base for further growth in 2010,” he said. Bullion futures for February delivery on the New York Mercantile Exchange’s Comex unit lost $18.50, or 1.6 percent, to $1,145.50 an ounce at 8:31 a.m. local time. Gold for immediate delivery in London was 1.3 percent lower at $1,143.62. “Traders continue to track the dollar,” James Moore, an analyst at TheBullionDesk.com in London, said in a report. “Expectations of record-low U.S. interest rates will likely limit substantial weakness in gold.” Up to $1,200? The metal increased to $1,164.25 an ounce in the morning “fixing” in London, used by some mining companies to sell production, from $1,142.50 at yesterday’s afternoon fixing. Prices may “test up to the $1,200 area” by the end of the year, said Chad Walls, head of precious-metals trading at Fortis Bank in Hong Kong. Bullion futures touched a record $1,227.50 an ounce on Dec. 3. Prices have rallied as central banks from Russia to Sri Lanka added more of the metal to reserves, and funds and individuals boosted purchases to protect their wealth against the weaker dollar and an expected strengthening of inflation. “There is much investment and central-bank demand waiting in the wings,” GoldCore Ltd., a brokerage in Dublin, said today in a note. “December and the early new year are traditionally a seasonally strong time for gold, and the increasing importance of Chinese New Year to world gold demand could see a rebound faster than many expect.” Further gold holdings are unattractive because the metal offers no cash returns, according to the Bank of Korea, which is diversifying foreign-exchange reserves away from a falling dollar. Most other central banks aren’t buying and the metal is too volatile, it said. Gold ‘Illusion’ “There’s an illusion in gold,” Lee Eung Baek, head of the bank’s reserve-management department, said in an interview. “We follow the big trend. Gold isn’t the trend. Out of more than 200 nations, how many countries have bought bullion?” The metal may average $1,150 an ounce next year, up from a previous estimate of $950, HSBC Securities analyst James Steel said in a report today, citing a weakening dollar and rising commodity prices. Prices may average $975 in 2011, he said. Silver for March delivery in New York lost as much as 2.5 percent to $17.905 an ounce and last traded at $17.94. Platinum for January delivery added 0.2 percent to $1,447.50 an ounce, and palladium for March delivery was little changed at $375.75 an ounce. Steel raised his 2010 forecast for silver by 21 percent to $17 an ounce, increased his platinum estimate 6.7 percent to $1,600 an ounce, and boosted his palladium prediction by 27 percent to $400 an ounce. Platinum held in ETF Securities Ltd.’s exchange-traded products rose 0.6 percent to a record 432,457 ounces yesterday, according to the company’s Web site. To contact the reporters on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net; Nicholas Larkin in London at nlarkin1@bloomberg.net

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