Gold Falls as Equity Loss Sparks Metals Sell-Off to Raise Cash
By Pham-Duy Nguyen
Oct. 10 (Bloomberg) -- Gold tumbled from the highest since July as investors sold the metal to cover losses in equity markets. Silver plunged 11 percent.
Global stocks had the biggest drop ever this week, commodities tumbled more than 5 percent today and government bonds fell. Earlier, gold reached $936.30 an ounce, the highest since July 29, on demand for a haven.
``The world is going to cash,'' said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. ``Investors are selling gold to raise dollars. There's just massive selling across the board.''
Gold futures for December delivery fell $27.50, or 3.1 percent, to $859 on the Comex division of the New York Mercantile Exchange, the biggest decline since Oct. 2. The metal reached a record $1,033.90 on March 17.
Silver futures for December delivery dropped $1.275 to $10.60 an ounce. The metal has dropped 29 percent this year.
The rush for cash may have been fueled by rumors that global markets may close for several days to allow governments to take corrective action. Italian Prime Minister Silvio Berlusconi said earlier today that world leaders were considering such action and later retracted his statement.
``The expectation is that they're going to shut the markets down for five days and people aren't going to have access to funds,'' McGhee said. ``It's just a rumor but it has picked up steam.''
The Standard & Poor's 500 Index headed for the biggest weekly decline ever, tumbling more than 22 percent since Oct. 3. The Reuters/Jefferies CRB Index of 19 raw materials is down 9.9 percent this week. Crude-oil futures fell as much as 9.3 percent today. U.S. Treasuries also fell, partly as some traders sold government securities to raise cash for margin calls.
Relative Value
``Everyone knows we're going into a deflationary recession or depression and historically, everything goes down in price in this environment,'' said Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois. ``Gold will perhaps do better than anything else but it will still go down. Gold will maintain its relative value.''
Gold, which is priced in dollars, can't rally if the U.S. currency remains strong, analysts at Deutsche Bank AG said today in a report.
Speculative Holdings
``The speculative community continues to hold a sizeable long position in gold, presumably as a hedge against further deterioration in market confidence,'' the analysts said. ``The gold price is trading excessively rich if it is not accompanied by substantial weakening of the U.S. dollar from here. The current level of the euro (is) implying a gold price closer to $760.''
The euro traded as low as $1.3355 today. It reached a record $1.6038 on July 15. Gold priced in euros and pounds rose to all-time highs this week.
Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, reached a record 765.7 metric tons yesterday.
Still, physical demand for gold will remain strong should the credit crisis persist, analysts said.
Londoners today stood in line outside the largest gold coin and bar retailer in the city's West End shopping district, clogging the lobby and trading among themselves as they sought a haven for their money.
``People want something tangible, something they can hold onto, something the banks can't give them,'' said Chris Burrow, the owner of ATS Bullion, the gold dealer in the Strand that traces its roots back to the 17th century. ``There's no time to breathe. We're rushed off our feet. Staff are exhausted.''
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at [email protected].
Last Updated: October 10, 2008 14:47 EDT
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