Gold Plummets to Settle at $1,741 on Strong Dollar

Gold fell sharply to settle at $1,741, set for its largest monthly decline since January, after the Federal Reserve’s move to boost U.S. growth lifted the dollar, which battered the commodities complex.
Adding to the pressure was a key gauge of Chinese manufacturing that showed a third consecutive month of contraction, which sent copper to its lowest level in a year and palladium to its lowest price in 10 months.
The Reuters-Jefferies CRB index of commodities [.CRB 307.24 -14.19 (-4.41%) ] was set for its biggest one-day slide since the “flash crash” in raw materials prices in early May this year.
Warning of “significant” downside economic risks, the U.S. central bank said it would launch a $400 billion program to shift its $2.85 trillion balance sheet more heavily towards longer-term debt.
The decision, while widely-expected, disappointed investors who had hoped for stronger stimulus measures, which prompted a slide in stocks and commodity prices.
The dollar index [.DXY 78.15 -0.30 (-0.38%) ] rose to seven-month highs after the Fed’s decision heightened the appeal of shorter-dated U.S. debt [cnbc explains] and gave the greenback’s yield-appeal an edge over that of other currencies, which in turn delivered a blow to gold.
Spot gold [XAU= 1743.49 8.16 (+0.47%) ] was last down 2.2 percent at $1,741.59 an ounce, its lowest since late August. Gold futures [GCCV1 1754.00 12.30 (+0.71%) ] fell $66.4 to settle at $1,741.70.
“Everyone says they’re concerned about economies everywhere, but I suppose it’s dollar strength. That’s what I’m putting it down to,” said Peter Hillyard, ANZ head of metal sales in Europe.
“The textbook ideas, the things we follow, the things we believe to be so are being shot to pieces for the moment and it’s very difficult to trade other than for a long-term view,” he said.
Gold has fallen by 4.8 percent so far in September, plagued by rising volatility and the strength of the dollar, although so far this quarter, it has hit record highs above $1,900 an ounce and is up 18 percent in its largest quarterly rally in 25 years.
“Looking at gold, you have periods when you have strength in the dollar and rising gold, when both are seen as safe-havens, but right now, you’d have thought that gold would be well supported given the European situation, the U.S. situation and a slowing China,” said Societe Generale analyst David Wilson.
“It’s really the dollar rally that is not particularly helpful,” he said.
Copper Dives to One-Year Low
Copper crashed below the psychological $8,000 a ton level on Thursday to hit one-year lows as economic fears escalated after news of manufacturing contraction in top consumer China and Europe combined with a grim outlook for the U.S. economy.
Other industrial metals followed, hitting 2011 lows.
Benchmark copper tumbled almost 8 percent to hit $7,635.75 a ton, its lowest since September 2010. A close near this level on the LME’s electronic trading system would be the biggest daily fall since October 2008.
The metal used in power and construction closed at $7,674 from $8,300 at the close on Wednesday. It is down about 25 percent since hitting a record high of $10,190 a ton in February.
Fueling the sell-off was news that China’s manufacturing sector contracted for a third consecutive month in September while a measure of inflation picked up, suggesting the world’s No. 2 economy may not be able to provide much of a counterweight to flagging U.S. and European growth.
“The Chinese PMI below 50 for the third month in a row can’t be good and the comments that came with the Fed decision from Bernanke spooked the market,” said Nic Brown, analyst at Natixis.
Investors Wary But Still Buying
Global holdings of gold in exchange traded funds [cnbc explains] fell since the end of August, as investors grew wary of its wide price swings and the uncertain economic outlook cut their appetite for any kind of risk.
After hefty inflows of metal late last week, however, the global gold ETFs tracked by Reuters have shown a rise of nearly 300,000 ounces of metal this month, indicating that investor appetite for gold is intact.
Investors are shifting their attention to the Group of 20 talks, due to take place in Washington on Thursday and Friday, where Europe will be under heavy pressure to stem its deepening debt crisis.
In other metals, palladium, used mainly in catalytic converters to reduce vehicle emissions, fell to its lowest since last November after the HSBC China Flash Purchasing Managers’ Index showed a third monthly consecutive contraction in factory activity.
The index dipped to 49.4 from August’s final figure of 49.9. A reading below 50 indicates contraction.
Economists and Chinese officials have widely predicted China’s growth will slow, largely because of waning exports. The country, known as the factory to the world, is especially vulnerable to fading demand from the United States and Europe, its two biggest export markets.

Palladium relies heavily on the Chinese car market for demand, where it is used in autocatalysts in gasoline-powered vehicles.

Imports of the metal rose by 9 percent year-on-year last month to their highest in five months, but evidence of a slowing China has cut investor appetite for palladium, as reflected by the 15 percent fall so far this year in holdings of the metal in ETFs.
Spot palladium [XPD= 642.47 1.89 (+0.29%) ] was last down 5.1 percent at $651.22 an ounce, while most-active U.S. palladium futures [PAZ1 660.95 -3.10 (-0.47%) ] were down 8.3 percent at $653.60 an ounce in their largest one-day fall since May 2010.
Platinum [XPT= 1695.74 15.94 (+0.95%) ] was down 3.9 percent at $1,687.49 an ounce, while silver [XAG= 36.18 0.42 (+1.17%) ] was down 8.1 percent at $36.37 an ounce.”-Source: StoxPlus.com”

Tags: CRB index, federal reserve, gold and dollar, gold fell sharply, gold plummets, the U.S central bank, Vietnam gold market

Posted by quynhdn on Sep 26 2011. Filed under Gold, Markets. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry