NEW YORK, March 19 (Reuters) - Gold tumbled 6 percent to a three-week low on Wednesday, marking its biggest one-day percentage drop in nearly two years as investment fund switched hot money out of the bullion market in a broad-based commodities retreat.
Other metals tracked gold, with platinum slipping more than 3 percent to a one-month low, silver falling over 7 percent to a three-week low and palladium posting sharp declines.
Fund managers, however, said they were still optimistic about the long-term trend of gold because aggressive rate cuts by the U.S. Federal Reserve and economic uncertainties should boost gold's appeal as an inflation hedge as well as a safe haven.
Thomas Winmill, portfolio manager who oversees $280 million of assets of Midas Fund in New York, said that funds and investors moved money out of commodities as they believed that the U.S. economy should recover soon.
"There is fund liquidation and they are reallocating to currently the hot and potentially recovering part of the market," said Winmill, referring to U.S. stocks, which had rallied 3 percent on Tuesday but turned nearly 2 percent lower by Wednesday afternoon.
Winmill said that the run in gold was far from over and bullion could rise further due to inflation fears.
"But the long-term fundamentals for investor demand is still in place. I think a total of 100 basis points cut in the Fed Funds rate is just adding fuel to the fire of the negative interest rate environment," which should boost gold,
Winmill said.
Spot gold fell to a low of $940.40 an ounce and was at
$944.20/945.00 by New York's last quote at 2:15 p.m. EDT (1815 GMT), against $1,002.30/1,003.10 late in New York on Tuesday.
The active U.S. gold contract for April delivery on the COMEX division of the New York Mercantile Exchange settled $59.00, or 5.9 percent, lower at $945.30, which marked the biggest one-day percentage loss since June 13, 2006, when it had fallen 7.3 percent.
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Gold sank on Wednesday amid a full-scale pullback of all commodities. The Reuters Jefferies CRB Index slid 4 percent, led by gold and a 6-percent drop of crude oil futures.
The dollar turned higher against the euro in volatile trading, drawing support from losses in gold futures, currency traders said.
The greenback was also lifted after the two largest U.S. mortgage finance companies on Wednesday won approval to pump up to $200 billion into the distressed U.S. mortgage market, the latest step in government efforts to stabilize credit markets and save the economy from recession.
Caesar Bryan, portfolio manager of the $670-million GAMCO Gold Fund in New York, said the dollar's rise stirred fears that central banks might intervene in the currency markets to
boost the dollar's strength, which could dampen gold's appeal.
"Maybe the gold market is saying: Watch out. Maybe there is some central bank intervention coming, which will rally the dollar. Though it could be temporary, it's enough to get some selling interest in the gold," Bryan said.
Traders also said that the April contract's sharp turnaround after rising to a record high of $1,030.80 on Monday suggested that a top is forming in the price of gold.
"A lot of technical support is being breached. In the gold, you're really just seeing a technical sell-off here, and some profit-taking from the run to $1,030 an ounce," said Zachary Oxman, senior trader with Wisdom Financial in Newport, California.
In other metals, spot platinum fell as low as $1,890 an ounce and was last quoted at $1,900/1,910, against $1,960/1,970 late in New York on Tuesday. It hit a record high of $2,290 on March 4.
Silver fell to $18.35/18.40 an ounce from its previous finish of $19.76/19.81 while palladium fell to $455/460 an ounce from $477/482 late in the U.S. market on Tuesday.
(Additional reporting by Anna Ringstrom in London; Editing by
Marguerita Choy) |
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