Gold fell 1.5 per cent on Friday to its lowest in three months as unusually large sale orders in New York futures and signs a deal might be near to avert a potential US debt default prompted jittery investors to flee the bullion market.
The precious metal, generally viewed as a safe-haven investment, fell $30 (Dh110.18) an ounce in just minutes in early US trading, sparking selloffs in crude oil and copper. Friday’s drop was reminiscent of a huge sell order that sent gold prices 3 per cent lower on October 1.
US gold futures trading was momentarily halted at 8:42 am EDT (1242 GMT) by CME Group’s Stop Logic mechanism to prevent excessive price movements. In the three minutes around the ten-second trading pause, gold prices slid almost $30, or about 2 per cent, with an unusually heavy turnover at nearly 20,000 contracts — about one-fifth of the market’s volume at the time.
Bullion’s drop stands in sharp contrast with higher US equities and a lower dollar as other investors were encouraged by the first signs of progress by US lawmakers to end the standoff in Washington.
On Friday, President Barack Obama and congressional Republican leaders moved to end their fiscal impasse but struggled to strike a deal on the details for a short-term reopening of the federal government and an increase in the US debt limit.
“If there is a temporary stop-gap measure to avert a disaster of US default, it will lead to the gold market going even lower,” said Jeffrey Sica, chief investment officer of Sica Wealth, which manages over $1 billion of client assets.
Gold’s sudden price tumble was a result of hedge funds and institutional investors flooding the gold futures market with sell orders, traders said.
US Comex December gold futures settled down $28.70 at $1,268.20 an ounce by 2:27 pm EDT, with trading volume about 10 percent above its 30-day average, preliminary Reuters data showed.
Spot gold was down 1.5 per cent at $1,266.80, having earlier fallen as much as 1.8 per cent to its lowest since July 10 at $1,262.14 an ounce.
Friday extended bullion’s drop to a fourth consecutive day, its longest losing streak since late June.
For the week, the metal was down 3.4 percent, its sixth weekly decline in seven weeks.
TECHNICAL BREAKDOWN
Gold’s losses were triggered by a break below key support between $1,273-1,278, which represents the low from August 7 to October 2, and the neckline of a head-and-shoulder continuation pattern, said Jonathan Krinsky, chief technical market analyst at institutional trading firm Miller Tabak.
Technical charts now suggest gold to fall to an area between $1,110 and $1,120, below June’s three-year low at $1,180, Krinsky said.
As a gauge of investor interest, the gold holdings of SPDR Gold Trust, the world’s largest gold-backed ETF, dropped 0.2 per cent, or 1.80 tonnes, to 896.38 tonnes on Thursday. That marked a four-year low.
Uncertainty over talks to lift the US debt ceiling in 2011 was a main driver for gold to hit record highs at above $1,920 an ounce. This year, sentiment towards bullion is much less positive, holding the metal in narrow ranges as markets largely expect the debt limit to be raised, analysts said.
Among other precious metals, silver fell 1.9 per cent to $21.22 an ounce. Platinum was down 1 percent at $1,366.49 an ounce, while palladium rose 0.5 per cent to $709.22 an ounce.
