London: Key precious metals tumbled on Thursday (17 August) as bullion investors sold their holdings following declines in stock markets and increased worries about credit market troubles.
Spot gold fell as much as 4% to a seven-week low, silver slumped by more than 8% to hit its lowest in over eleven months, platinum slipped nearly 3% to a 5-month low and palladium was down 6%.
“It’s a very nervous market, unfortunately. The whole precious metals sector is down on worries about other markets. Equities are off, oil is off, gold has come off. There are still concerns about the American economy,” said a trader in London.
“I still think these levels could be buying opportunities but at the moment, there is too much selling. The market has been overtaken by selling by some of the funds who are selling some of their positions to make margin payments, etc.”
Global stocks dropped sharply on 16 August as fears grew that deteriorating credit market conditions may deal a blow to economic expansion.
US stocks traded in an extremely volatile session. The blue-chip Dow Jones industrial average recovered from its steep losses of more than 300 points to trade slightly higher in late afternoon trading, after the benchmark index posted consecutive losses in the past five sessions.
Gold traditionally has been used by investors as protection against economic and political uncertainty. But in recent months it has behaved much like other financial assets because of the growing role of commodities in diversified portfolios.
In a sign of tightening credit, Countrywide Financial Corp., the biggest US mortgage lender, said it had to draw down an entire $11.5 billion bank credit line to fund its operations.
The Reuters/Jefferies CRB Index also hit a new low as energy and grains futures dropped.
“Selling pressure is more dominant as the market is more closely watching equities and currencies,” said a trader at a Japanese trading house.
Near-term sentiment for gold was weak, but some traders said it was expected to be supported by seasonal demand, with Indian and other Asian players expected to enter the market to take advantage of sharp price dips.
In other metals, silver fell as low as $11.06 an ounce, the lowest since late October, and was last quoted at $11.78/11.81, against New York’s Wednesday’s close of $12.54/12.59.
Platinum fell to a low of $1,225 an ounce before recovering slightly to $1,228/1,235, versus $1,261/1,268 late in the US market. Palladium was at $331.45/335.45 after falling as low as $325.35 an ounce, compared with its previous finish of $345.50/349.50.
Despite the weakness in prices, UBS raised its price forecast for platinum for 2008 and 2009, saying physical inventories of the metal remained low.
The brokerage raised its 2008 forecast to $1,350 an ounce from $1,200 and 2009 forecast to $1,250 from $1,100. It maintained its 2007 forecast of $1,250.
(Additional reporting by Frank Tang in New York) Reuters