NEW YORK/LONDON: Gold tumbled 3 percent on Monday, headed for its largest one-day drop in nearly three months, as a dollar surge amid doubts over the euro zone triggered a technical breakdown.
A bout of heavy sell-stops below $1,700 an ounce sent the metal to its lowest level since late October -- as equity investors liquidated gold positions to cover equity and commodity losses, after a European summit failed to restore market confidence and borrowing costs in Italy and Spain rose.
Jittery gold investors have been busy buying put options and put spreads to hedge downside risks. On charts, a bearish technical pattern could lead to another $100 loss from current levels, traders said.
"In the near term, we believe gold will push lower at least down to the $1,615 area but possibly more," said Tom Fitzpatrick, chief technical strategist of CitiFX, Citigroup's technical research unit.
"The head-and-shoulder top we have suggest that we can get a lot closer to the lows we saw in September down toward or below $1,550 an ounce," he said.
The next major chart support will be spot bullion's 200-day moving average at around $1,615 an ounce.
Spot gold dropped 2.7 percent to $1,663.86 an ounce by 11:18 a.m. EST (1618 GMT), having touched a near two-month low of $1,657.04.
US gold futures for February delivery were down $49.20 at $1,667.50 an ounce.
Silver fell 3.4 percent to $31.12 an ounce.
Wall Street fell 2 percent after the European Central Bank was forced to step in again despite a summit deal over the weekend to strengthen budget discipline in the euro zone.
This lack of confidence in Europe pushed investors into the relative safety of the US dollar, rather than gold, which has recently taken to follow riskier assets and fallen by about 5 percent in the last week alone.
"Fears of gold liquidation to pay for losses in the equities markets has accelerated the downward move," said Carlos Perez-Santalla, precious metals broker at PVM futures.
Perez-Santalla said that the situation in Europe was viewed by some investors as under control, and that view has been keeping gold out of its safe haven status.
COMEX gold option floor trader Jonathan Jossen said option dealers were largely buying outright put options and put spreads to limit more downside risk in futures.
A number of put options with strike prices between $1,400 and $1,600 an ounce were traded, Jossen said.
BULLION ETF HOLDINGS ROSE
A more than 1 percent increase in the dollar index against major currencies also triggered selling.
The resurgent dollar -- which makes gold more expensive for holders of non-US currencies -- kept jewelers and other physical consumers at bay in India, the world's largest consumer of bullion, dealers said.
However, there is continued evidence of investor demand for gold elsewhere, as the swell in holdings of gold in exchange-traded products reached record highs last week.
In the last month, holdings at the largest gold-backed exchange-traded products have risen by nearly 1.2 million ounces, largely in response to concern over the slow progress in solving the euro zone debt crisis.
Prices of platinum group metals also weakened. Palladium fell 4.2 percent to $655 an ounce, while platinum fell 2 percent to $1,481.24 an ounce.
Comments
Comments are closed.