With the greenback making gains, there is short term pressure on the yellow metal
Gold dropped the most in a year as a rising dollar prompted some investors to sell bullion on the heels of a rally to an all-time high. The US Dollar Index, a six-currency gauge of the greenback’s value, rose as much as 1.7 per cent after a government report showed US employers cut fewer jobs last month than forecast. Gold futures fell as much as 6.5 per cent from a record of $1,227.50 an ounce.
“So many people have piled into gold, so this pop in the dollar is freaking people out,” said Matt Zeman, a metals trader at LaSalle Futures Group Inc. in Chicago. “The dollar is rocking and gold is getting its teeth kicked in.”
Gold futures for February delivery fell $48.80, or 4 per cent, to $1,169.50 an ounce at the close of floor trading on the New York Mercantile Exchange’s Comex unit, the biggest drop for a most-active contract since December 1, 2008.
In after-hours electronic trading, futures dropped as much as 5.8 per cent to $1,147.40 in New York, the biggest intraday decline since December 1, 2008. The metal slid 0.5 per cent this week, halting a month-long rally.
In London, gold for immediate delivery dropped $46.20, or 3.8 per cent, to $1,161.40 an ounce. The spot price reached a record $1,226.56.
Gold was today’s biggest loser among commodities. The plunge spurred sales of gold stocks. The Philadelphia Stock Exchange Gold and Silver Index of 16 mining companies dropped 5.5 per cent, led by Toronto-based Barrick Gold Corp., the world’s biggest producer. The index is up 47 per cent this year.
Losses accelerated after the Labour Department in Washington released figures showing the fewest monthly job cuts since the recession began. The nation’s jobless rate fell to 10 per cent in November, dropping from a 26-year high in October.
“Gold is going to remain vulnerable to these sell-offs,” Zeman said. “The dollar is rocketing higher because economic recovery will eventually lead to rate hikes.”
Dollar decline
The dollar weakened this year as the Federal Reserve kept benchmark US interest rates near zero per cent since December 2008 in a bid to revive lending after the worst financial crisis since World War II. Earlier, the dollar index sank 8.2 per cent, while gold rallied 38 per cent.
“Not only is speculative length in gold at a record high, history shows US dollar losses in December will be recouped in the first four weeks of the new year,” Deutsche Bank AG analysts said in a report.
Gold’s rally pushed its 14-day relative strength index, a gauge watched by some investors as an indicator of future direction, to 83.5. The index fell below 60 today. Some analysts and investors who use price charts view a reading of more than 70 as a signal that a decline is imminent.
“Gold is going to fall under its own weight,” said Tom Hartmann, an analyst with AltaVista Worldwide Trading Inc. in Mission Viejo, California. “There aren’t a lot of people out there who have been short on gold.”
Price outlook
Bullion will gain next week, according to 19 of 24 traders, investors and analysts surveyed by Bloomberg before today. Five forecast lower prices.
Goldman Sachs Group Inc. raised its 12-month gold forecast to $1,350 an ounce, from a previous estimate of $960. The metal will average $1,265 an ounce next year, the New York-based bank said.
“I wouldn’t be surprised if people see this as a bargain-buying opportunity,” LaSalle’s Zeman said. The metal has rallied on news that central banks including those of India and Russia increased their gold holdings and on speculation that governments, the biggest bullion holders, will buy more.
“It is a bull market, and in bull markets one buys weakness when weakness avails itself,” economist Dennis Gartman told clients in his Gartman Letter. He said he’d buy if the metal trades below $1,200 by a few dollars. Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, fell for the first time since November 13, after rising for four straight days. The ETF’s gold cache declined 1.52 metric tons to 1,129.97 tons, according to the company’s Web site. The fund’s holdings reached a record 1,134 tons on June 1.
Among other precious metals in New York, silver futures for March delivery fell 60.8 cents, or 3.2 per cent, to $18.52 an ounce, paring the week’s gain for the most-active contract to 1 per cent. Prices dropped as much as 4.3 per cent today.
The author is a Bloomberg News columnist. The opinions expressed are his own
