Gold drops to one-week low

Gold fell to a one-week low on speculation slowing US economic growth will stall demand for the precious metal as a hedge against inflation.

Concern that rising US home-loan delinquencies will curtail expansion in the world's largest economy prompted declines in European, Asian and US equities.

Holdings of bullion in the StreetTracks Gold Trust, the biggest exchange-traded fund for gold, dropped 0.9 per cent this month after a plunge in Chinese stocks.

"There is a US growth scare,'' said Tim Weir, who helps manage about $375 million at London-based Wessex Asset Management, including gold shares. "Gold is down since late February as part of the reduced liquidity in risky trades.''

Gold for immediate delivery declined $3.40, or 0.5 per cent, to $640.40 an ounce at 10:48 am London time. Earlier, prices dropped to $640.30, the lowest since March 6. Tokyo gold futures dropped 2.3 per cent.

Wessex has reduced its gold equity holdings and hedged against declines in the StreetTracks Gold Trust by selling it "short'', Weir said. The drop in gold is a "necessary correction within a bull market which is still intact'', he said.

The US Mortgage Bankers' Association said in a report yesterday that foreclosures on loans to borrowers with the best credit ratings are climbing, a sign of broader trouble in the housing market. The share of subprime borrowers making late payments rose to a four-year high, the Washington-based group said.

Gold would not only decline as investors sell "risky'' assets, Dresdner Kleinwort said in a metals report on Wednesday. "A slowdown of the US economy with an increasing risk of slipping into recession would also reduce the appeal of gold as a hedge against inflation,'' the report said.

Silver dropped 11 cents to $12.665 an ounce. Platinum declined $5 to $1,202.50 an ounce and palladium fell $3.50 to $344 an ounce.