Gold plunged in New York, heading for the biggest drop in 18 months, on speculation that financial markets may be stabilizing, eroding the appeal of the precious metal as a haven.
Bullion has tumbled more than 5 percent in two days, erasing gains in the past two weeks that sent the metal up as much as 16 percent since Aug. 5 to a record $1,917.90 an ounce yesterday. On Aug. 16, Wells Fargo & Co. said rising speculative demand from investors had pushed the market into a “bubble that is poised to burst.”
“This is liquidation from a crowded trade,” Adam Klopfenstein, a senior market strategist at MF Global Holdings Ltd. in Chicago, said in a telephone interview. “In the short run, there’s more optimism and that doesn’t bode well for gold. Investors have been using gold more as a fear barometer than a proxy for inflation.”
Gold futures for December delivery plunged $72.30, or 3.9 percent, to $1,789 an ounce at 12:11 p.m. on the Comex in New York. A close at that level would be the biggest loss since Feb. 4, 2010.
The dollar rose against a basket of six major currencies amid speculation about whether Federal Reserve Chairman Ben S. Bernanke will say this week that the central bank is willing to provide more stimulus to the economy. Central bankers meet this week in Jackson Hole, Wyoming, to address the U.S. recovery. Gold gained 31 percent this year through yesterday as burgeoning global debt crises and turmoil in equity markets boosted the appeal of the metal as an alternative asset.
Soros, Paulson
In the second quarter, George Soros and Eric Mindich cut their holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by the metal. Paulson & Co., the U.S. hedge fund run by John Paulson, maintained its position of 31.5 million shares, the biggest stake in the ETF.
“This is just pure panic selling,” Frank McGhee, the head dealer at Integrated Brokerage Services in Chicago, said in a telephone interview. Before today, gold’s 14-day relative strength had been above 70 since Aug. 8, a signal to technical traders that prices are poised to fall.
Orders for U.S. durable goods climbed more than forecast in July.
“Europe is on vacation and the sovereign-debt fears are being addressed,” Frank Lesh, a trader at FuturePath Trading, said in a telephone interview from Chicago. “The currency markets are pretty stable and not scaring anybody at the moment.”
ETP Holdings
Holdings of bullion-backed ETPs fell for a third day yesterday, sliding 1.1 percent to 2,181.6 metric tons, the biggest drop since January, data compiled by Bloomberg show. Assets reached a record 2,216.8 tons on Aug. 8.
“Gold got pushed up on the idea that Bernanke will announce further quantitative easing,” Patricia Mohr, a commodity market specialist at Scotia Capital, said in a telephone interview. “Now people are not so sure whether that will happen and that is creating disappointment in the gold market.”
The decline may be a buying opportunity to some investors, said James Dailey, who manages $200 million at TEAM Financial Management in Harrisburg, Pennsylvania.
“A lot of traders and investors who are long-term bullish on gold sold out hoping for a correction because of how much it went up,” said Dailey. “The drivers remain intact. The toughest thing to do is stay invested during the various parabolas and sit through the corrections.”
Bloomberg Pham-Duy Nguyen and Debarati Roy – Aug 24, 2011