NEW YORK/LONDON: Gold closed 3 percent lower on Wednesday as investors sold the precious metal and bought stocks after a German court declined to block Germany's participation in euro zone bailouts.
Both the spot price of gold and US gold futures fell below $1,800 an ounce before settling off the day's lows. The selloff came after the precious metal hit record highs above $1,920 on Tuesday.
Stocks on Wall Street jumped 2 percent, rallying with shares on other major exchanges, after Germany's top court rejected lawsuits aimed at blocking Berlin's involvement in emergency loan packages. Chancellor Angela Merkel called the ruling a validation of her euro zone policy..
"I think it's a pretty valid assumption that people are selling gold and buying stocks today, with the stock market rallying on news that Germany might participate more actively in the Greek bailout plan," said Adam Klopfenstein, metals strategist at Lind-Waldock in Chicago.
"We're seeing the flight-to-quality theme in gold fading in the near-term, but I do think the long-term buyers and holders of gold haven't changed their thesis yet. What we're seeing are just corrections in a bull market. In three days, people who didn't buy in the break below $1,800 might just regret it."
At 4.00 p.m. EDT (2000 GMT), spot gold was at around $1,815 an ounce, down $57 from the level seen in New York late on Tuesday. It hit a low of $1,793.19 during Wednesday's session.
In the futures market, US gold for delivery in December finished down $55.70 at $1,817.60 an ounce, moving between $1,883.20 and $1,793.80.
Wednesday's swing of more than $80 was the most volatile seen in gold in almost two weeks. In late August, bullion moved more than $100 at times between session peaks and troughs.
Fears that lack of support from Germany and other economic powers would scuttle the bailout of debt-saddled European countries helped fuel much of the near 30 percent rally in gold this year.
On Tuesday, the precious metal hit a record high of $1,920.30 after the Swiss National Bank pegged its currency to the euro to prevent gains in the Swiss franc from damaging the country's economy. Profit-taking began soon after gold peaked in that session.
Despite the liquidation, analysts said gold was still in a position to rally as the Swiss intervention could be emulated by other central banks wanting to safeguard their currencies from excessive appreciation.
"Efforts to dampen currency appreciation mean gold moves up the pecking order of preferred safe havens," said UBS in a note. "This is crucially important given that safe havens are currently sought as alternatives to equities and other assets while macro concerns and European sovereign issues prevail."
Among other precious metals, silver was down about 1 percent at below $42 an ounce and spot platinum was down 1.8 percent at under $1,820 an ounce.
Copyright Reuters, 2011
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