Gold plummeted more than 9 percent on Monday,
and was down more $140 per ounce, as investors ditched the precious
metal en masse in search for better returns in other assets.
Gold's drop triggered a broad based commodity sell-off and was mirrored
by a 10 percent plunge in silver. Platinum and palladium also fell
sharply.
Bullion's harrowing sell-off caught many veteran
investors by surprise.
In percentage terms, it has fallen 13 percent
over the past two days.
There has been no drastic changes in
gold's supply/demand picture in the last week although numerous factors
have kept gold from rising while investments like U.S. stocks took off.
While last week's news that the Central bank of Cyprus might sell gold
reserves to finance its European Union bank bailout did trigger a rush
for the exits when bullion slid below the pivotal $1,500 an ounce
threshold, few saw it likely to usher in a round of other official
disposals.
"The pressure from proposed sale of Cyprus gold is
one of the factors, and once one of them start they all run from the hen
house,'' said Robert Richardson, senior account executive and trading
officer at Canadian broker-dealer W.D. Latimer Co. Ltd.
The big
question is whether the gold bull market is over after 12 years of
consecutive yearly gains. Gold has now halved its rally since the 2008
economic crisis, leaving the metal $550 below its record high of
$1,920.30 set in September 2011.
Weaker-than-expected Chinese
economic data earlier on Monday simply gave investors another excuse to
slash holdings as U.S. equities and other key industrial commodities
including oil and copper fell. But Monday's selloff in the Dow Jones
industrial stock average comes days after stock indexes hit record
highs.
Recent signs that Fed officials appeared to be nearing a
decision to start winding down their bond purchases to end stimulus
contributed to the negative tone for gold, even though inflation has
failed to materialize as feared during its rounds of post-financial
crisis quantitative easing.
The yellow metal has been a traditional hedge against inflation and safe haven in times of economic turmoil.
Gold dropped as low as $1,355.80 an ounce before recovering slightly to $1,369, still down 7.4 percent.
U.S. gold futures
settled down $140.30 at $1,361.10 per ounce at the lowest level since
Feb. 11, 2011. The drop was the largest fall in dollars on record and
the biggest percent decrease since March 17,1980.
Gold ETF Outflow, Cyprus
Investors cut exposure to gold, with total holdings at the world's
major bullion gold-backed exchange-traded-funds falling to their lowest
since early 2012.
Investors have been dumping gold for the past three weeks.
Even escalating tensions on the Korean peninsula and Japan's
aggressive monetary stimulus have failed to burnish its safe-haven
appeal.
"We are entering a phase of additional long liquidation
by ETF investors and short-selling from hedge funds, which will
continue in the foreseeable future,'' Saxo Bank senior manager Ole
Hansen said.
Among other precious metals,
silver was down 8.6 percent to $23 an ounce.
Spot palladium dropped 4.7 percent to $667.72, while
platinum was down 4.7 percent at $1,415 per ounce.
Posts
