Prices hit by technical selling; silver drops 5.3%
By Myra P. Saefong and Carla Mozee, MarketWatch
SAN FRANCISCO (MarketWatch) — Gold futures tumbled Friday, poised to settle at their lowest level since July 2011, as recent cuts to price forecasts continued to hurt sentiment, prompting investors to lose confidence in gold as a safe-haven investment.
Gold for June delivery GCM3 -3.94% extended losses after downbeat U.S. retail-sales data, dropping $62.60, or 4%, to $1,502.30 an ounce on the Comex division of the New York Mercantile Exchange after a dipping to a low of $1,491.40. It’s on track for a weekly fall of 4.6%.
“It’s pure panic bedlam on enormous volume,” said Gene Arensberg, editor of the Got Gold Report.
Based on most-active contracts, FactSet data shows prices haven’t settled this low since July of 2011.
Gold also fell along with other commodities, including oil, following a weak batch of U.S. economic data and as the psychological impact of potential selling of the precious metal from Cyprus continued to take a toll.
Gold these days “does not seem to respond adequately to the current financial and geopolitical situation,” said Frederic Panizzutti, senior vice president at MKS Group.
“The rumors yesterday about Cyprus possibly selling some gold from its Central Bank reserves had a psychological impact resulting in some selling despite the fact that the amount of gold being mentioned could easily be absorbed by the market,” Panizzutti said.
Cyprus was back in the news Friday on speculation its government might ask for more bailout money, which rattled commodities and underpinned the dollar. The country denied it would seek more help.
Despite trouble in Cyprus, which is usually supportive for gold as a safe haven, investors have focused on Goldman Sachs’s recent cut to its gold forecast for 2013 to $1,545 an ounce, down from a prior forecast of $1,610. And minutes of the latest Federal Reserve meeting released this week showed members were at odds about when to stop quantitative easing.
“The speculative funds are near-record short gold futures, so it is easy to understand why Goldman would make such a call, but with the trouble heating up in Europe again and bonds being bid higher today, the move in gold is somewhat counterintuitive,” said Arensberg.
Also on Friday, Eric Rosengren, president of the Boston Federal Reserve, said the U.S. is “well above our unemployment target and well below our inflation target, so highly accommodative policy is both appropriate and necessary.”
Continued Fed easing tends to support gold prices as the metal acts a hedge against inflation, though lately gold doesn’t seem to be finding much support anywhere.
Gold investors have now created an illusion that the metal is no longer a safe haven and that more declines are in the offing, said Chintan Karnani, an independent bullion analyst based in New Delhi.
Also weighing on the dollar-denominated metal Wednesday, the dollar got a bid after poor U.S. economic data. Retail sales fell 0.4%, exceeding the 0.1% drop that was expected. also sank after that data was released.
Data Friday also showed that consumer confidence in early April fell to the lowest level in nine months.
The dollar index DXY +0.03% , which measures the greenback against a basket of six major currencies, rose to 82.253 from 82.153 seen in North American trading late Thursday.
“It is rather a dollar move then a commodity move,” said Panizzutti of gold’s fall on Friday. “We do believe that the current lower gold price could trigger some buying back. Perhaps we should expect more volatility on the very short term.”
As for those Europe-area problems, on Friday the Cyprus finance ministry denied reports that President Nicos Anastasiades had asked the European Union for extra assistance to get his struggling nation back on track.
The financially troubled country has reportedly agreed to sell excess gold reserves to help with its bailout efforts.
A greater downside risk for gold, however, likely comes from continued outflows from gold exchange-traded products, Barclays’s precious metals analyst Suki Cooper told clients Thursday. Outflows have reached 202 tons so far this year compared with inflows of 279 tons in 2012.
Shares of the SPDR Gold Trust GLD -3.63% and iShares Gold Trust IAU -3.62% took hits as well, both losing 3.5% Friday afternoon.
And gold wasn’t alone in the selloff. Silver for May delivery SIK3 -4.94% shed $1.27, or 4.6%, to $26.43 an ounce. It’s down about 3% for the week.
“Silver will crash in a big way only if it trades below $25.90,” said Karnani. As long as silver trades over $25.90, it will consolidate in the $25.90-$28.96 range.
May copper HGK3 -2.50% lost 9 cents, or 2.6%, to $3.34 a pound, nearly flat for the week.
July platinum futures PLN3 -2.64% slumped $38.40, or 2.5%, to $1,497.40 an ounce, down around 2.5% from a week ago, and palladium for June delivery PAM3 -2.92% fell $20.50, or 2.8%, to $712.65 an ounce, set to lose 1.6% for the week.
Myra Saefong is a MarketWatch reporter based in San Francisco. Follow her on Twitter @MktwSaefong.
Carla Mozee is a reporter for MarketWatch, based in Los Angeles. Follow her on Twitter @MWMozee.
