MW: Gold futures drop over $25 as U.S. dollar surges
Japan intervenes in currency markets to weaken the yen
By Myra P. Saefong and Polya Lesova, MarketWatch
SAN FRANCISCO (MarketWatch) — Gold and silver futures dropped sharply Monday as Japan intervened in the currency markets, weakening the yen and fueling a rally in the U.S. dollar which, in turn, weighed on demand for dollar-denominated commodities.
Gold for December delivery GC1Z -1.48% slumped $26.30, or 1.5%, to $1,720.90 an ounce on the Comex division of the New York Mercantile Exchange. It touched a low of $1,705.50 earlier.
“The inevitable yen intervention boosted the dollar this morning,” said Richard Hastings, a macro economist at Global Hunter Securities.
“But it is the threat of much greater coordinated [Group of 20] currency actions which could boost the dollar more persistently [that is] pressuring metals prices today,” he said.
“Japan alone cannot successfully intervene and absolutely change the dollar-yen balance. So the threat of coordinated global action is building up and this is a new threat, and the [New York] markets absolutely do not like the tone of this,” he said.
The dollar index DXY +1.49% , which tracks the performance of the greenback against a basket of other major currencies, rallied to 75.930, up from 75.063 late Friday. Read more about currencies.
The Bank of Japan sold an undisclosed amount of yen on the foreign-exchange market Monday in a bid to weaken the Japanese currency.
Dollar-denominated gold prices tend to fall when the dollar rises because that makes the metal more expensive for holders of other currencies.
“After a short period of consolidation in gold, I believe it will continue upward progression,” said Jeff Wright, managing director at Global Hunter Securities. “We are comfortable with gold rising back to $1,800–$1,900 level in early 2012 with a spike above $2,000 in the first half of 2012.”
For now, metals saw broad declines. Silver futures for December delivery SI1Z -3.01% fell 93 cents, or 2.6%, to $34.36 an ounce on Comex and December copper HG1Z -2.67% traded at $3.60 a pound, down 10 cents, or 2.8%.
January platinum PL2F -2.44% sank $37.50, or 2.3%, to $1,614.30 an ounce, while December palladium PA1Z -2.07% shed $12.15, or 1.8%, to $656.20 an ounce.
