New York, December 06: Gold’s record rally deflated on Friday, as prices tumbled as much as 5 percent after a dollar rally triggered by better than expected U.S. data sent investors racing to cut positions.
Gold posted its biggest one-day percentage loss since December 1, 2008, but remained up 33 percent year to date.
Dealers said bullion was due for a correction after investment funds and individual investors piled into the metal, favoring a hard asset amid concerns about the value of paper currencies and potential inflation.
“We’ve had a big move in a short period of time and it was clearly overbought. It was susceptible to a pullback. I don’t think this is a surprise,” said Caesar Bryan, who manages the $650 million New York-based GAMCO Gold Fund.
Spot gold fell as low as $1,147.25, a one-week bottom. It was at $1,161.50 an ounce at 5:02 p.m. EST (2202 GMT), down from $1,207.10 late in New York on Thursday.
U.S. February gold settled down $48.80, or 4 percent, at $1,169.50 an ounce on the COMEX division of NYMEX.
Gold prices began spiraling downward after the Labor Department reported that U.S. employers cut 11,000 jobs in November, the smallest number of job losses since the start of the recession in December 2007.
That report, which suggested the job market could begin to recover soon, sent the dollar rallying against the euro and yen.
“Gold has been hit quite badly after the dollar strengthened on the non-farm payrolls data … counter to what you would normally expect,” said Dan Smith, analyst at Standard Chartered.
Bill O’Neil, partner at New Jersey-based LOGIC Advisors, said that bullion investors sold heavily to cover margin calls amid widening losses.
Wall Street also sharply cut initial gains as investors fretted that the positive jobs data could prompt the Federal Reserve to raise interest rates.
“There are a few reasons to believe that we are not all of sudden heading for euphoric-type situation here,” O’Neill said.
Spot prices struck a record high at $1,226.10 an ounce on Thursday amid expectations for persistent weakness in the dollar and rising inflation in 2010.
Chart support broken
U.S. February gold futures broke below 14-day support level at $1,171.40 an ounce and the key November 30 support at $1,165. The next level will be around $1,130.00 per ounce, Bryan said.
Some economists are suggesting the U.S. Federal Reserve may be able to tighten monetary policy sooner than expected based on positive economic data.
“The data point to a transition in the economy from a deep recession to a modest recovery,” said William Sullivan, chief economist, JVB Financial Group in Florida.
“This will encourage the Fed to be more vocal about an exit strategy from their highly accommodative posture.”
A weekly report from Commodity Futures Trading Commission released after the close on Friday showed that net long noncommercial positions in gold fell 1 percent to 259,064 lots in the week up to December 1.
–Agencies