China data, weak sentiment, potential central-bank sales blamed
By Barbara Kollmeyer, Carla Mozee and Sara Sjolin, MarketWatch
LONDON (MarketWatch) — Gold futures slumped more than $85 to their lowest level in over two years on Monday, as the metal dropped through key technical support levels, while the broader metals complex sank after disappointing Chinese data sparked worries of industrial metals demand.
Gold for June delivery GCM3 -6.15% tumbled $87.40, or 5.8%, to $1,413.80 an ounce, but had dropped to as low as $1,384.60. Gold last week lost 4.7%.
Mining firms were hard hit by the selloff, with shares of Fresnillo PLC UK:FRES -15.18% sinking 16% in London, Polymetal International PLC UK:POLY -9.20% down 9.4% and Randgold Resources Ltd. UK:RRS -7.58% GOLD -7.40% off 7.6%.
Monday’s losses exceeded gold’s heavy drop on Friday, when it lost $63.50, or 4.1%, to $1,501.40 an ounce on the Comex division of the New York Mercantile Exchange. Friday’s settlement price marked a 20.5% drop for the most-active contract from the record settlement of $1,888.70 an ounce reached on Aug. 22, 2011.
Traders and analysts have cited numerous reasons for gold’s breakdown.
Sentiment has suffered due to recent cuts to price forecasts for the precious metal and outflows from gold exchange-traded products. Among those calls, Goldman Sachs, last week lowered its average gold-price forecast for 2013 to $1,545 an ounce, a level the metal took out Friday.
“Any traders who were anticipating a near-term bounce in the precious metal today would have been caught out in a big way as it broke below Friday’s low of $1,481, and didn’t look back,” said Stan Shamu, market strategist at IG Markets in Melbourne in a note to investors. “The drop only halted at $1,426, which was a resistance zone in December 2010 and March 2011.”
Shamu said gold’s tumble has largely been blamed on potential central-bank sales to shore up fiscal shortfalls. “This is after ECB President Mario Draghi put pressure on Cyprus to sell its excess gold reserves to help fund the bailout and plug a €6 billion gap. Although Cyprus is yet to decide how it’ll fund the gap, these comments have rattled investors and caused the selloff.”
He said this has also triggered a “breakdown of the gold/quantitative easing relationship we’d gotten used to, where poor U.S. economic readings lead to prolonged QE expectations and in turn a weaker U.S. dollar and stronger gold price. This drop officially puts gold in a bear market.”
Others noted heavy sell orders for gold that went through New York’s COMEX market on Friday. Ross Norman, chief executive officer of Sharps Pixley, said some 400 tonnes were pushed through by sellers last Friday, with another 70 tonnes coming through in Asia and Europe trading.
Copper prices HGK3 -3.16% , meanwhile, lost 10 cents, or 3%, to $3.25 a pound. Copper’s gain of 0.2% last week was wiped out after China, the world’s second-largest economy, posted quarterly-growth and monthly industrial-production figures that missed analyst expectations.
China’s gross domestic product in the January-March quarter rose 7.7%, slower than growth of 7.9% in the fourth quarter, and below expectations for an 8% gain in separate surveys from Dow Jones Newswires and Reuters.
Among the other Chinese data, March industrial production increased 8.9% from the year-earlier period, missing the Dow Jones Newswires forecast for a 10% gain. The growth was the weakest in more than a year, slowing from a 9.9% average rise for the January-February period.
Oil prices were also tumbling on Monday as the weak China data deepened worries about demand for the commodity.
The ICE dollar index DXY +0.08% , a measure of the dollar against a basket of six other major currencies, fell to 82.24 from 82.295 late Friday.
European stock markets also traded lower, while U.S. stock futures pointed to a lower open on Wall Street.
Elsewhere in the metals complex Monday, silver for May delivery SIK3 -9.76% dropped $2.54, or 9.8%, to $23.78 an ounce, building on last week’s 3.3% retreat.
July platinum futures PLN3 -3.69% slumped $50.30, or 3.4%, to $1,445.10 an ounce. They fell 2.6% last week.
Palladium for June delivery PAM3 -4.70% lost $30.15, or 4.3%, to trade at $678.95 an ounce. Palladium ended last week 2% lower.
Barbara Kollmeyer is an editor for MarketWatch in Madrid. Follow her on Twitter @MWBarbaraKollmeyer.
Carla Mozee is a reporter for MarketWatch, based in Los Angeles. Follow her on Twitter @MWMozee.
Sara Sjolin is a MarketWatch reporter based in London. Follow her on Twitter @sarasjolin.
