Gold, silver sink on fund sales
By Frank Tang and Daniel Magnowski
Fri Mar 2, 4:44 PM ET
Security guards count several one kilo gold bars inside a secured vault in Dubai April 20, 2006. The global flight from risk knocked precious metals again on Friday, with gold falling below $650 an ounce for the first time in three weeks as shaky global stock markets prompted investors to reduce positions in commodities. (Tamara Abdul Hadi/Reuters)
NEW YORK/LONDON (Reuters)
- The global flight from risk knocked gold and silver
hard for a third straight day on Friday, with bullion
falling below $640 an ounce for the first time in
1-1/2 months as funds and currency investors cashed
out on precious metals to pay for losses in other
Investors often buy
gold as a safe bet when financial markets look unstable,
but investors are keen to unload the metal after plunges
in global equity markets this week, analysts said.
Many investment funds were seen
to have bought commodities, including gold, over the
past month with the proceeds from stocks as Wall Street
reached record highs last month.
By 3:56 p.m. EST (2056 GMT), spot gold was quoted
at $642.70/643.40 per ounce, down sharply from $662.60/663.30
late in New York on Thursday. It fell as low as $639.80
on Friday, the lowest level since January 24 and down
nearly 7 percent from the nine-month high touched
Most-active gold for
April delivery on the COMEX division of the New York
Mercantile Exchange settled down $21.00, or 3.2 percent,
at $644.10 an ounce, after bottoming at $641.30, a
1-1/2-month low. It hit a session high of $668.20.
YEN CARRY TRADE HURT
Carry trades, in which
investors use low-yielding currencies like the yen
as a cheap source of funds to buy higher-yielding
currencies and assets, were largely to blame for Friday's
sell-out in gold futures, analysts said.
This is because the
yen rose to an 11-week high versus the dollar, and
currency traders needed to close out their positions
in gold futures to unwind bets on riskier assets that
were financed by borrowing the Japanese currency.
"It seems that
traders that are in the carry trade are obviously
continuing their mass exodus. The money is coming
out of gold and silver, mostly futures, where many
of the carry traders have used gold and silver to
park some of their carry trade profits," said
Phil Flynn, vice president and senior market analyst
at Alaron Trading.
James Steel, analyst
at HSBC, said that as yen carry traders unwound their
currency positions, it would force them to close out
the long gold positions.
Steel also said that
general weakness in the emerging markets was a big
factor in gold's decline.
"Near term, I
am still a little bearish. But I think it's going
to be fundamentally very attractive quite soon. We
will have to see how much further the correction has
got to go," Steel said.
SAFE-HAVEN BID UNSEEN
Gold is often used by investors as a safe haven in
times of financial uncertainties, but analysts said
that this time funds opted for cash and to pay off
losses because of the equities rout.
"It's one thing
for people to run around and say it's a great diversifier
and a safe haven to all the risks. But the fact is,
when things start going bad, people tend to liquidate
their gold holdings in order to pay for the bad stuff,"
said Bernard Hunter, director of precious metals at
markets start going down badly in particular, and
people start getting calls for margins, gold seems
to be one of the first things that people liquidate
in order to raise cash to pay for losses on other
products," Hunter said.
analysts said in a market report that gold was not
glittering any longer as a safe haven.
in general are perceived as risky assets ... This
asset class is just sold to reduce portfolio risk
and to take profits in order to compensate losses
suffered in other assets like equities," the
"Thus, as long
as unwinding of yen carry trades continues and equity
prices head south, gold and silver remain in the wake
of bear markets."
Silver followed gold
to trade sharply lower. It was last quoted at $12.89/12.94
an ounce, a level last seen on January 19, sharply
below Thursday's late U.S. quote of $13.56/13.61.
The white metal also dropped about 4 percent on Thursday.
Platinum fell to $1,200/1,205
an ounce from its previous close of $1,236/1,241 in
New York, while palladium was down $3 at $344/347
compared with its late quote in New York.
by Chikafumi Hodo in Tokyo and Doris Frankel in Chicago)