Bloomberg, Feb. 7

Gold Falls Most Since '04 as Oil's Drop Eases Inflation Concern

Feb. 7 (Bloomberg) -- Gold fell the most in two years in New York after a drop in the cost of oil eased speculation that inflation will accelerate and erode the value of assets including equities.

Before today, gold had surged 38 percent in the past year, reaching a 25-year high of $579.50 on Feb. 2, as rising energy prices increased the precious metal's appeal as a hedge against inflation. Crude oil fell today on speculation U.S. oil supplies are large enough to cushion the market from any disruption in supply from Iran, the world's fourth-largest producer.

``The oil market started this all off and gold was reacting in kind,'' said Brian Hicks, who helps manage $3.2 billion at U.S. Global Investors Inc. in San Antonio. ``We saw a lot of fund buying in January and we knew that was going to taper off at some point. We've clearly lost some momentum.''

Gold futures for April delivery fell $19.50, or 3.4 percent, to $554.80 on the Comex division of the New York Mercantile Exchange, the biggest drop since January 2004.

Gold for immediate delivery in London fell $18.70, or 3.3 percent, to $551.20, the biggest drop since April 2004, after falling to $550.35. The metal has gained almost 7 percent this year, after advancing 18 percent last year.