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Gold Tumbles to Lowest Since December as Dollar Strengthens
Gold fell to the lowest price since December as the dollar surged, eroding the appeal of the precious metal as an alternative investment. Silver also declined, erasing this year's gains.
The dollar has climbed 4.4 percent against the euro this month while gold has fallen 10 percent. Gold and other commodities are priced in the U.S. currency and generally move in tandem with the euro as an alternative to the dollar. Gold's losses accelerated after crude-oil futures gave up early gains to touch $112.72 a barrel.
``There is a big lack of buying interest in gold,'' a metals trader said
at LaSalle Futures Group in Chicago. ``It was a huge dollar rally and the euro just got creamed. Gold is going to have a hard time getting any sustainable traction to move higher.''
Gold futures for December delivery dropped $36.50, or 4.2 percent, to $828.30 an ounce on the Comex division of the New York Mercantile Exchange, the lowest closing price for a most- active contract since Dec. 24.
Gold has fallen every session this month, with the most- active contract losing $94.40 since July 31. The metal entered a bear market today, declining 20 percent from a record $1,033.90 an ounce reached on March 17.
The euro touched $1.4881 today, the lowest since Feb. 26, after falling the most in more than seven years on Aug. 8. It reached a record $1.6038 on July 15.
``Although we do not expect the start of a new long-term uptrend in the U.S. dollar, a pocket of U.S. dollar strength is likely to sustain the difficulties in extracting positive returns from the precious metals sector,'' analysts at Deutsche Bank AG said in a report today.
Inflation Hedge
A stronger dollar, coupled with a decline in commodities, also has eroded gold's appeal as an inflation hedge. The Standard & Poor's GSCI Index of 24 futures has fallen 22 percent from a record on July 3.
``All the big money has come out of gold, silver and commodities,'' Zeman of LaSalle said. ``If commodities keep coming down, inflation will moderate on its own.''
Gold rose to a record in March as oil headed for an all- time high this year as some investors sought to preserve purchasing power. Most-active crude-oil futures have tumbled 23 percent from a record $147.27 a barrel on July 11.
``With oil coming down, that kind of makes people think commodity prices are going down,'' said Ron Goodis, futures- trading director at Equidex Brokerage Inc. in Closter, New Jersey. ``We have to watch out for this global slowdown.''
Accelerated Drop
Today's losses accelerated after gold fell below $850, Goodis said. He said most-active futures have given up roughly half the gain from a rally that began about a year ago and took the metal from $666.80 up $367.10 to a record in eight months.
Last year, the Federal Reserve began a series of cuts with an emergency reduction in the discount rate between banks on Aug. 17, signaling more moves to come to lower U.S. credit costs. Policy makers cut the federal funds rate seven times from 5.25 percent in September to 2 percent in April.
For gold, ``$850 was everyone's psychological number,'' Goodis said.
Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, dropped 2.2 percent last week to 659 metric tons. The fund reached a record 705.9 tons on July 11.
``The continued exodus of fund money from commodities might turn potential recoveries into selling opportunities,'' said Jon Nadler, a senior analyst at Kitco Minerals & Metals Inc. in Montreal.
Relative Strength
The 14-day relative strength index for gold futures sank below 26 today. A decline to less than 30 may signal a rebound in the price. Gold traded as high as $872.70 today. |
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