NEW YORK: Gold prices tumbled to a one-month low Thursday, plunging after the dollar gained some muscle against the euro and hedge funds cashed in profits following the metal s record-setting rally above $1,000.
Gold had staged a phenomenal run before this week s decline, gaining nearly 20 percent this year as investors snapped up the metal traditionally seen as a safe-haven during economic uncertainty and rising inflation. Gold began losing steam after Tuesday s lower-than-expected Federal Reserve interest rate cut propped up the dollar, sparking a huge commodities sell-off from everything to copper to crude oil to grains.
People are reducing positions. It may be a quarter-end phenomenon, it may be a scaling back for leverage but the bottom line is, people are selling stuff, and gold and commodities are getting slaughtered, said John Reade, analyst with UBS AG in London.
Gold for April delivery lost $25.30 to settle at $920 an ounce on the New York Mercantile Exchange, after earlier falling as low as $904.70 – its lowest level since Feb. 19. On Wednesday, gold dropped 5.9 percent, its biggest one-day loss in nearly two years and almost $100 less than its all-time high of $1,033.90, reached on Monday.
The dollar has been firming up and there s a lot profit-taking, said Scott Meyers, analyst with Pioneer Futures in New York. If you couple that with falling oil and grain prices, it s a perfect recipe for a weak precious metals market.
The dollar strengthened versus the 15-nation euro Thursday, and oil fell below $100 for the first time in two weeks. A stronger greenback prompts investors to sell hard assets, which are considered a hedge against inflation. It also makes dollar-denominated commodities more expensive for overseas buyers.
Other precious metals also traded sharply lower Thursday. Silver for May delivery fell $1.265 to $17.180 an ounce on the Nymex, while May copper dropped 8.35 cents to $3.55 a pound.
The steep rise in precious metals has led consumers to pay higher prices for gold earrings, bracelets and other jewelry in recent months. Still, gold remains well below the inflation-adjusted high of 1980. Gold would need to reach about $2,200 an ounce to surpass its 1980 high.
After gold hit $1,000 for the first time ever last week, some analysts began warning of a correction, arguing the metal s white-hot ascent would eventually reverse. Still, gold watchers predict the metal will continue its upward climb amid fears that the US is sliding toward or already in a recession, record-high crude prices and a weak dollar.
Is this a correction? I think so, but history has shown that corrections usually follow a path of being fast, furious and short-lived, Meyers said. By no means do I think this is the beginning of a bear market for gold.
In addition, more fallout from the global credit crisis, such as the government-backed bailout of Bear Stearns Co. by JPMorgan Chase & Co., could again boost the allure of precious metals as an alternative investment in rough economic times.
If we see dollar weakness, more credit crunch issues and stagflation fears, then gold could readily go back higher, Reade said.
