LONDON (SHARECAST) - The price of gold fell sharply on Tuesday as the US dollar strengthened in the wake of comments on Monday evening by US Treasury Secretary Timothy Geithner, while a surprise increase in Chinese interest rates also caught traders on the hop.
Geithner refuted accusations that the nation would weaken the greenback for a trade advantage to improve economic performance.
"It is very important for people to understand that the United States of America and no country around the world can devalue its way to prosperity and competitiveness," Geithner claimed.
Those comments put a floor under the dollar and diminished the appeal of gold, which traditionally moves in a contrary direction to the greenback.
Meanwhile, the Chinese central bank said it would raise both its benchmark one year deposit and lending rates by a quarter percentage point as it seeks to curb inflation. It is the first change the authorities in China have made to interest rate policy since 2007.
With the economic landscape changing so quickly holders of gold were wrong footed, and the most widely traded contract, gold for December delivery, suffered its biggest one day fall since early July, declining $36.10 to $1,336 an ounce in New York, its lowest level since 7 October.
The fall could have been bigger, with the December contract dipping to $1,332.50 at one stage, as pundits decided that the events in Washington and Beijing were likely to undermine the price of metals, and the yellow stuff in particular.
The December silver contract also fell sharply, tumbling 63 cents to $23.78 an ounce, its lowest level since 12 October. Copper, meanwhile, fell 10 cents to $3.76 a pound, its lowest level since 7 October.
The gold bulls were cheered, however, by press reports that South Korea is contemplating buying gold to diversify its currency reserves.
The strength of the dollar and the Chinese interest rate moves also put a dent in oil prices. Crude for November delivery slipped to $79.49 a barrel, down $3.59 on the day. It was the first time oil had finished the trading day below $80 a barrel in New York since 29 September.
The American Petroleum Institute released its inventories data for the week to 15 October which showed crude oil stockpiles increased by 2.3m barrels, slightly more than the market had been expecting. Gasoline inventories fell by 83,000 barrels.
