MW: Gold falls as investors swap into cash; copper slumps
Gold futures fell for a second session Tuesday, down more than 2% as traders sold the metal and other commodities to raise cash amid growing concerns over the health of major U.S. banks and the outbreak of swine flu.
The Federal Reserve is pressuring Citigroup Inc. and Bank of America Corp. to raise more capital, The Wall Street Journal reported. Meanwhile, General Motors Corp. outlined a new turnaround plan that would leave the U.S. government controlling the automaker.
"Cash conservation seems to be foremost in traders' minds," said George Gero, a precious-metals trader for RBC Capital Markets. "Sellers in gold, crude, and copper appeared from funds interested in raising cash, concerned with swine flu hurting economies and more uncertain outcome of automobile bailouts."
Gold for June delivery lost $20.70, or 2.3%, to $887.50 on the Comex division of the New York Mercantile Exchange.
Faring worse, May copper declined 7.9 cents, or 4%, to $1.9075 a pound.
In other commodities, June crude lost more than 2% to below $49 a barrel. See Futures Movers.
Holdings in SPDR Gold Trust stood at 1,104.45 tons on Monday, unchanged from the end of last week, according to the latest data from the fund.
SPDR holdings indicated that "rising risk aversion did not spur investment demand [for gold]," wrote Commerzbank analyst Barbara Lambrecht in a research brief.
The biggest gold exchange-traded fund fell 1.9% to stand at $87.29 in recent trading Tuesday.
In the short term, gold may remain under pressure, Commerzbank said, as India's Akshaya Tritiya holiday has ended. The religious holiday was a major driver for physical gold demand that contributed to rising gold imports in April in India, the world's biggest gold consumer.
On Wall Street, U.S. stocks dropped as the banking news worried investors and as the World Health Organization increased its threat level for the swine flu outbreak.
The Fed said Citigroup and Bank of America may need cash based on early results of the so-called stress tests. The capital shortfall would amount to billions of dollars at Bank of America, the Journal's report said.
Executives at both banks are objecting to the preliminary findings, it said.
Meanwhile, the World Health Organization raised its swine-flu threat level, which now stands just two steps short of a full pandemic. The WHO also said it was now too late to contain the virus.
In other metals, May silver lost 61.5 cents, or 4.8%, to $12.34 an ounce. July platinum sank $63.30, or 5.5%, to $1,087 an ounce.
Bucking the trend, June palladium rose $7.45, or 3.3%, to $236.40 an ounce.
