Gold recoils from record on stock bounce, margin hike

NEW YORK: Gold tumbled more than 3 percent on Thursday from a record hit overnight in Asian trading, as a rebound in US stocks, an increase in trading margins and technical signals spurred traders to take profits from the biggest rally since 2008.

Prices slumped more than $60 from their peak in one of the biggest daily swings ever. Yet analysts showed no signs of revising their overwhelmingly bullish view of gold, up nearly 20 percent since June as investors seek safer havens amid global debt crises and a darkening economic outlook.

Concerns of a deepening European crisis and the possibility of distress among French banks helped propel gold to a record $1,813.79 an ounce in Asian trading. Those worries are unlikely to disappear soon, analysts said.

Traders said steeper margin requirements also would not stop gold's long-term advance. Late on Wednesday, the CME Group Inc. hiked margin requirements for 100-ounce gold futures by 22 percent, the biggest rise in about 1-1/2 years and the first such rise since January.

"Once again, gold's decline is indicative of a sell-off of safe haven assets, more of a risk on type trade today,"said David Meger, director of metals trading of commodity broker Vision Financial Markets, Chicago.

"The European sovereign debt issue is going to remain an ongoing issue, and the economy moving forward is concerning. All of the positive factors that have been supporting gold for the last several months are not dissipating. Inevitably, we view this as a pullback within an uptrend."

As Wall Street stocks rallied nearly 3 percent, gold kept trading in inverse lock-step with equities. The spot price for bullion fell 1.6 percent to $1,766 an ounce at 12:21 p.m. EDT (1621 GMT), off a low of $1,754.05. August gold futures fell 0.95 percent to $1,767.40 an ounce.

The intra-day trading range stood at $63 an ounce, the sixth-widest in Reuters data going back to 1983. Tuesday's range was the fifth biggest ever.

COMEX gold trading volume looked set to cool after Tuesday's record-breaking 437,000 lots, with slightly more than 265,000 lots having traded by midday.

Investors were cashing in gains from a four-day rally that had boosted prices by nearly 9 percent. That run briefly carried into Thursday, but was cut short by news the CME would raise speculative margins to $5,500 per contract from $4,500, effective from the close on Thursday..

Gold was "overextended to an extent that requires a setback," said Ole Hansen, senior manager at Saxo Bank. "The CME has shown its hand, and given average daily price swings has moved towards 3 percent, a margin of 5500 still seems to little, so we are expecting further hikes."

He said gold could potentially fall towards $1,700 an ounce if this moves gathers pace, "considering how much hot money has come in over the last week."

Traders had also noted that the 14-day Relative Strength Index (RSI) had surged to above 85 for the first time since last October, deep into overbought territory. It pulled back on Thursday to 76, still relatively high.

Heavy losses in the global stock markets have highlighted gold's appeal as a safe store of value. After a wobbly start, world shares rallied as US markets firmed on relatively positive weekly jobs data and solid results from Cisco.

Copyright Reuters, 2011