London: Gold prices tumbled nearly 5% to a one-week low below $1,140 (Rs53,352) an ounce on Friday as investors, fearing debt default in Dubai, sought safety in dollars and cash.
Other precious metals also slipped. Silver hit a two-week low of $17.66 an ounce, while platinum and palladium touched one-week lows of $1,418.50 and $351 an ounce, respectively.
Spot gold briefly hit a low of $1,136.80 a troy ounce, the lowest since 16 November and was bid at $1,160.00 an ounce at 1219 GMT from $1,192.60 on Thursday, when the precious metal hit $1,194.90—a record high.
Safe haven: Gold has also been sold because the higher dollar makes the precious metal more expensive for holders of other currencies. Hauryoshi Yamaguchi / Bloomberg
“It’s mainly driven by this news out of Dubai (which) has had a large impact on risk appetite and resulted in a sharply stronger dollar,” said Daniel Major, a metals analyst at RBS Global Banking and Markets.
Dubai said on Wednesday two flagship firms planned to delay repaying billions of dollars in debt. State-backed Dubai World has $59 billion of liabilities—a big chunk of the emirate’s debt of $80 billion.
That has raised the spectre of default and triggered a sell-off of risky assets such as commodities and stocks.
Gold, a traditional safe haven, has also been sold because the higher dollar makes the precious metal more expensive for holders of other currencies.
“The events in Dubai highlight the elevated level of sovereign risk heading into next year, the potential pockets of dollar strength that this can deliver,” Deutsche Bank said in a research note.
Many investors will also be selling gold, up more than 30% this year, to pay for losses elsewhere.
“Margin calls might be playing a part here, particularly for Middle Eastern investors,” said David Thurtell, analyst at Citi.
But analysts say expectations of gold purchases by central banks in emerging markets will help buoy prices.
Earlier this week, the International Monetary Fund (IMF) said it had sold 10 tonnes of gold to the Central Bank of Sri Lanka, adding the sale was part of the 403.3 tonnes approved by its executive board in September.
IMF has already sold 202 tonnes to the Reserve Bank of India and the Bank of Mauritius. “The central bank story is the one that has driven gold higher, not just the dollar story,” Major said.
Earlier this week, IMF declined to comment on a newspaper report which suggested India could buy more gold from the fund.
Also driving gold are purchases by investors looking for a hedge against inflation that could be triggered by the vast amounts of money being pumped into the global economy by central banks and governments around the world.
That can be seen in the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, holding 1,127.860 tonnes as of 25 November and within touching distance of the record 1,134.03 tonnes seen on 1 June.
Spot silver was at $17.94 an ounce from $18.61 late in New York on Thursday, platinum at $1,432.50 an ounce from $1,452 and palladium at $361.0 an ounce from $368.