Investors jump ship from gold market

PRATIMA DESAI

Reuters

August 12, 2008 at 6:47 AM EDT

LONDON — Gold prices plummeted to eight-month lows on Tuesday as the dollar's rally triggered a massive sell-off, hitting oil and industrial metals as well.

Spot gold touched $801.90 (U.S.) an ounce, its lowest level since late December, and was at $810.60/811.60 at 1016 GMT compared with $819.25/820.85 late in New York on Monday.

The precious metal is down more than 20 per cent since hitting a record high of $1,030.80 on March 17.

“It looks like sentiment towards gold has turned negative, we're seeing long liquidation on the back of both dollar movement and the oil price movement,” said Suki Cooper, analyst at Barclays Capital.

A stronger U.S. currency makes commodities priced in dollars more expensive for holders of other currencies.

Oil hit $112.48 a barrel, the lowest since early May as the market focused on events in currency markets and the International Energy Agency predicted higher supplies.

“Commodity prices in general, and precious metal prices in particular, continue to slide as the dollar strengthens,” Standard Bank said in a note. “Reports of weak bullion demand out of India added to the sell-off.”

The higher dollar and tumbling oil subdued activity in soft and agricultural commodities.

Benchmark copper on the London Metal Exchange hit a six-month low of $7,251 a tonne as escalating worries about global economic and demand growth prompted investors to accelerate their retreat.

The metal used in power and construction has tumbled about 18 per cent since a contract high of $8,940 a tonne on July 2.

“Everyone seems to be abandoning everything in commodities,” said Adrian Koh, analyst at Phillip Futures.

Also under heavy selling pressure was industrial metal platinum used to make auto catalysts. Investors have been selling their holdings on concern about falling demand from car makers.

The bulk of the world's platinum is used by auto makers in auto catalyst systems that scrub exhaust fumes of dangerous and environmentally damaging chemicals.

Spot platinum fell to $1,462.50 an ounce, the lowest since the middle of December, and was last at $1,475/1,495 from $1,517/1,537 an ounce on Monday.

Prices have slid by about 35 per cent since an all-time high of $2,290 an ounce in early March.

Some analysts think further weakness in the auto manufacturing sector could provoke another major sell-off.

“Leading economic indicators of major industrial economies continue to indicate declining economic growth, signalling weak demand for platinum group metals (PGMs),” Standard Bank said.

“However, at the current pace of price decline, some higher-cost PGM mines could become marginal producers. Metals at their current prices also leave very little incentive to develop new PGM projects in South Africa.”

Silver dropped to $13.99 an ounce, the lowest since December, and was at $14.36/14.41 from $14.65/14.71 on Monday.

Palladium touched $298 an ounce, the lowest since October 2006, and was at $309/317 from $317/325.