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Gold Falls to Five-Week Low as Equities Slip; Tokyo Drops Limit
By Feiwen Rong
March 5 (Bloomberg)
Last Updated: March 5, 2007 03:48 EST
-- Gold in Asia fell to a five-week low as investors sold the metal to cover losses in equities. Tokyo gold futures dropped the daily limit.
Gold futures in Japan dropped the maximum allowed by the exchange for a second day as Asian stocks tumbled to the lowest in two months. The Nikkei 225 Stock Average lost 3.3 percent today, the most since June 13. Gold tumbled 5.9 percent in New York last week after a sell-off wiped more than $1.5 trillion from the value of global equities.
``The market is very nervous,'' Jonathan Barratt, managing director of Commodity Broking Services in Sydney, said by phone today. ``People who have margin calls continue to sell whatever securities that could bring cash to them.''
Gold for immediate delivery fell as much as $4.70, or 0.7 percent, to $637.75 an ounce. The metal traded at $639.65 at 4:34 p.m. in Singapore. In Japan, gold futures for delivery in February 2008 fell 90 yen, the most allowed on the Tokyo Commodity Exchange, to close at 2,432 yen a gram ($653 an ounce).
Platinum futures for delivery in February 2008 on the Tokyo Commodity Exchange also fell by the daily limit of 100 yen, or 2.2 percent, to close at 4,432 yen a gram.
``Many Japanese investors have bought gold on Tocom last week at 2,610 yen level'' and now stampede to exit those positions, said Thomas Izumi, trader at Sumitomo Corp. in Tokyo.
Before last week, gold had climbed for seven weeks in a row, gaining more than $80 from the year's low of $603 on Jan. 5.
In India, the price of the metal for April delivery fell 92 rupees, or 1.0 percent, to 9,242 rupees per 10 grams ($645 an ounce) at 2.03 p.m. Mumbai time on the Multi Commodity Exchange.
Reduced Appeal
Gold has more than doubled in the past five years, outpacing the S&P 500 and the benchmark 10-year U.S. Treasury, which have returned about 25 percent for investors.
U.S. economic data last week added to gold investors' concern that growth in the world's biggest economy is slowing, further reducing gold's appeal as an investment to hedge against inflation, Barratt said. Some investors buy gold to store wealth when raw materials prices rise.
The Commerce Department said gross domestic product last quarter rose at a 2.2 percent annual rate, compared with a 3.5 percent rate reported on Jan. 31. New home sales plunged and a gauge of manufacturing contracted, while orders for durable goods slid the most since October.
``People are saying `well if there's no inflation, why should I hold on to my gold?''' Barratt said. ``They ask `where is that inflation that we've been buying gold on?' and it hasn't been seen in all those numbers.''
Further Correction
Gold futures for April delivery fell as much as $4.50, or 0.7 percent, to $639.60 an ounce on the Comex division of the New York Mercantile Exchange before recovering to $641.20 at 4:35 p.m. Singapore time. Prices dropped 6.2 percent last week.
``More correction'' in bullion prices may come amid economic concerns, Ng Cheng Thye, head of the precious metals market desk at Standard Bank Asia, said by phone from Singapore. ``Gold could go down to $625 an ounce'' before stabilizing, he said.
The yen climbed to its strongest in almost three months against the U.S. dollar as Asian stocks extended a global slump, prompting investors to unwind riskier investments funded by borrowing in Japan.
``As gold prices also declined, the perceived risks associated with yen-funded investment in gold increased, likely compounding the decline in the gold price,'' David Moore and Tobin Gorey, commodity strategists at Commonwealth Bank of Australia, wrote in a report dated March 1.
The yen gained to 115.29 against the dollar at 3:31 p.m. in Singapore after reaching 115.19, the strongest since Dec. 8, from 116.81 in New York on March 2.
Silver for immediate delivery fell 22 cents, or 1.7 percent, to $12.66 an ounce at 4:34 p.m. in Singapore, extending a decline of 11.6 percent last week. Platinum fell $21.25 to $1,185 an ounce while palladium fell $6.50 to $340.50 an ounce.
A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.
To contact the reporter on this story: Feiwen Rong in Singapore at frong2@bloomberg.net .
Last Updated: March 5, 2007 03:48 EST
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