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Gold in biggest monthly fall in 20 years
Gold prices drifted lower yesterday and headed for their biggest monthly drop in more than 20 years, as a strong dollar and recession fears triggered a sell-off, traders and analysts said.
- Reuters
- Published: 00:00 November 1, 2008
London: Gold prices drifted lower yesterday and headed for their biggest monthly drop in more than 20 years, as a strong dollar and recession fears triggered a sell-off, traders and analysts said.
Macroeconomic data on Thursday that showed the US economy had shrunk 0.3 per cent, the sharpest fall in seven years, escalated recession worries and knocked down all commodities, including metals and oil.
Platinum fell more than 5 per cent as slowing economies around the globe and the widespread credit crisis caused the largest auto industry companies to slash full-year profit targets, warn of job losses and push for speedy government handouts.
Gold was at $732.50 an ounce by 1240 GMT, having trimmed losses after hitting $720.70 an ounce, compared to $735.50 an ounce late on Thursday in New York.
"Gold's moves today are mainly currency driven," said Simon Weeks, director of precious metals at the Bank of Nova Scotia. "At the month-end flows are in favour of the dollar."
Recession fears
The dollar was firmer against most major currencies on expectations of large dollar demand for the month-end. Gold tends to move in the opposite direction of the dollar as a strong US currency makes bullion more expensive for local currency holders.
Recession fears added to the bearish sentiment.
US data released yesterday showed consumers in that country cut their monthly spending for the first time in two years during September, evidently bracing for hard times as jobs continue to disappear and credit conditions tighten.
"In times of recession, the most likely scenario for gold is it goes down a lot, especially if it is trading at historically high levels," said Jesper Dannesboe, senior commodity strategist at Societe Generale.
"Because the fears of inflation will be replaced by fears of disinflation and that is a killer for gold ... I think gold is going below $600 in this cycle." The metal has lost as much as 21 per cent of its value in October alone, and is down 12 per cent this year, well below the record high of $1,030.80 struck in March.
It hit a 13-month low of $680.80 last week after investors sold bullion to pay for margin calls. A recovery in stock markets and firmer oil spurred a rebound in gold this week but technical selling emerged after it failed to sustain Thursday's high.
Oil slipped for a second day, dropping more than 3 per cent towards $64 a barrel and is set for its biggest ever monthly loss as weak US economic data rekindled demand worries, which, in theory, reduces gold's appeal as a hedge against inflation.
"Investors are reluctant to buy too much, in case anything happens. We've seen a little bit of physical selling around $770," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong, referring to this week's high.
Platinum was trading at $792.00 ounce, down $25 from New York's notional close.
It has lost more than 60 per cent of its value since hitting a lifetime high of $2,290 in March, mainly due to worries about falling demand for autocatalysts.
As the strong yen forced Japanese carmakers Mazda and Mitsubishi to slash full-year targets, struggling US automakers were looking to obtain billions from the U.S. government to help them to survive. More than 60 per cent of global platinum goes to autocatalysts to clean exhaust fumes. New York gold futures fell $6.1 an ounce to $732.4.
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