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Gold at one-month low as investors shun commodities
Thu Mar 20, 2008 6:13pm EDT
By Frank Tang and Anna Ringstrom

NEW YORK/LONDON (Reuters) - Gold finished nearly 3 percent lower on Thursday, capping a tumultuous week that included a record high on Monday and a 6 percent slide the previous session, as investment funds cashed in bullion for cash to cover losses in other financial markets.

All U.S. commodities markets will be shut on Friday for the Good Friday holiday. The markets will reopen on Monday for normal trading hours.

The combination of a sharp bounce of the dollar and heavy losses in the energy markets also prompted liquidation in gold amid a full-scale commodities retreat for a second day.

Other metals also dropped sharply following gold's decline, led by silver's losses of more than 8 percent. Platinum and palladium also slumped.

On Thursday, spot gold bottomed at $904.65 -- a level last seen on February 18 -- versus $944.20/945.00 late in New York on Wednesday. It was last at $920.30/921.10 by New York's last quote at 2:15 p.m. EDT.

Gold dived 6 percent on Wednesday in a dash for cash which analysts said was sparked by a smaller-than-expected U.S. rate cut on Tuesday.

Gold peaked on Monday at $1,030.80. The yellow metal was still up 10 percent since the start of the year.

Jonathan Jossen, an independent floor trader in New York, blamed gold's decline on deleveraging -- raising cash to reduce debt, meet margin calls and cover losses.

"That's what is happening all around the market. All they knew was to be long in commodities, but now they pulled the rug out from under it. So, I'd definitely say it's margin calls. It's definitely part of it," Jossen said.

The active U.S. gold contract for April delivery on the COMEX division of the New York Mercantile Exchange settled down $25.30, or 2.7 percent, to $920.00 an ounce, following the biggest one-day percentage loss in nearly two years on Wednesday.

Stocks in gold producers also extended their sharp sell-off into a fourth day on Thursday.

The most volatile of the sector indexes, the American Stock Exchange's Gold BUGS index of producers, shed another 4 percent on Thursday, bringing its losses since its Monday peak to nearly 17 percent.

"There has been a lot of long liquidation, I think primarily driven by the flee to cash to cover other losses ... especially in equities and currencies," said Daniel Hynes, metals analyst at Merrill Lynch.

"I think gold will remain under pressure today and it could drag on into next week. But I don't think we are too far off some good support levels which may see it rebound," Hynes said.

The dollar rallied on Thursday to its strongest level against the euro in a week, as investors took profits from oil, gold and other commodities, repatriating their cash back into the beleaguered U.S. currency.

Oil was down as much as 4 percent, briefly dipping below $100 a barrel, denting gold's appeal as a hedge against inflation. However, U.S. crude futures retraced early losses and traded just below $102 a barrel in afternoon trade.

Dealers also noted a significant drop in the open interest of the U.S. gold futures after they surged to a record high on Monday, signaling heavy liquidation of long positions.

UBS said in a research note it too expected gold to remain volatile in the short term, being caught up in the broader deleveraging trend.

"We are now at very attractive levels in many precious and base metals, but it is impossible to stand in the way of the relentless selling," the bank said.

Other precious metals followed gold. Silver dropped 8.3 percent to $16.86/16.91 an ounce from its previous finish of $18.38/18.43 late in New York on Wednesday.

Platinum fell 2 percent to $1,855/1,875 an ounce from its Wednesday close of $1,900/1,910 -- off a record high of $2,290 hit on March 4 -- while palladium fell 6 percent to $438/443 an ounce from its U.S. late Wednesday finish of $455/460.

(Additional reporting by Bate Felix in London)

http://www.reuters.com/article/goldMktRpt/idUSL2040688320080320?pageNumber=2&virtualBrandChannel=10150&sp=true