Gold, Metals Plunge as Dollar Rally Spurs Speculators to Sell
Dec. 8 (Bloomberg) -- Gold in New York fell the most in 10 months, and the prices of other metals plunged, as a rebound in the dollar eroded the appeal of the commodities as an alternative to U.S. stocks and bonds.
Gold for February delivery, which reached a 16-year high on Dec. 2 as the dollar dropped to a record against the euro, plunged $16.90, or 3.7 percent, to $436.80 an ounce at 11:39 a.m. on the Comex division of the New York Mercantile Exchange. Silver fell 10 percent, the most since April. Platinum and palladium declined, and copper dropped to a five-week low.
``The dollar is a major factor in determining the price for these dollar-denominated commodities,'' said Scott Morrison, who manages $70 million at SAM Capital LLC in New York. ``When everyone decides to head for the exit door, there's not enough room for everybody to get through.''
Speculator buying, fueled by concern the dollar might continue to slide, had helped boost gold prices as much as 22 percent since mid-May. Silver in April reached the highest price since 1987, and copper jumped to a 15-year high in October and is up more than 35 percent in the past year.
The dollar rose the most since May against the yen and rallied versus the euro, Canadian dollar and a dozen other major currencies as some traders reduced bets the U.S. currency would decline.
Speculators reduced their holdings of New York gold contracts last week while increasing them for copper and silver, the U.S. Commodity Futures Trading Commission said Dec. 3.
Reduced Holdings
Hedge funds and other large speculators bought 128,453 more gold futures contracts than they had sold as of Nov. 30, down 7.3 percent from a week earlier and the first drop in four weeks, commission records show. The so-called net-long positions had more than doubled since mid-May.
Speculator holdings of silver futures rose to 67,224 more contracts than were sold, compared with 65,758 a week earlier, the commission said. Net-long silver holdings were the highest since at least January 1991. The net-long position in copper was 28,262 contracts, compared with 24,906 a week earlier.
Silver futures for March delivery fell 80 cents to $7.085 an ounce on the Comex. A close at that price would be the biggest decline since April 21. Prices had risen as much as 38 percent this year.
Copper futures for March delivery fell 4.5 cents, or 3.3 percent, to $1.307 a pound on the Comex, after touching $1.298, the lowest since Oct. 29. Palladium for March delivery fell $5.85, or 2.8 percent, to $204 an ounce, and platinum for January delivery fell $36, or 4.1 percent, to $835 an ounce.
A futures contract is an obligation to buy or sell a commodity at a set price by a specific date.
Technical Trading
A close at gold's current price would be the biggest drop since April 28. Prices have fallen 4.8 percent since reaching a high of $458.70 on Dec. 2.
Gold's decline accelerated as prices fell below $452 and $450, triggering selling by speculators who follow charts and graphs, said William O'Neill, a partner at Logic Advisors LLC, a commodity consulting company in Upper Saddle River, New Jersey.
``When the dollar came in with a strong move up today, that was enough to kick off technical selling,'' O'Neill said. ``Gold was looking a bit shaky technically in recent sessions.''
The Philadelphia Gold & Silver Index, which tracks shares of 12 precious metals producers, including Newmont Mining Corp., fell 2.93, or 2.9 percent, to 97.32, the lowest in 10 weeks. The S&P/TSX Materials Index, which tracks 61 mining companies, fell 13.19, or 0.9 percent, to 1466.18. Phoenix-based Phelps Dodge Corp., the biggest U.S. copper producer, fell $1.20 to $87.90.
To contact the reporter on this story: Claudia Carpenter in New York at ccarpenter2@bloomberg.net.
To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net. Last Updated: December 8, 2004 11:44 EST
The Dollar may actually go down below 80 a bit only to claim the largest possible number of speculative shorts before turning around for a rally. -WANG
I think it’s gullible enough to buy the story and continue being “psychologically managed” away from crisis. There’s a reason why “dollar crisis” is so oft repeated in the news today. To desensitize the financial world to fears of a dollar crisis, thereby nipping the problem in the bud.
Make no mistake: The dollar is headed lower. Most likely a lot lower. To lows lower than any other lows ever. And then still a bit lower than that. I don’t doubt that for a second. The global fiat currency is based on nothing more than a lick and a promise and long-term it’s headed toward complete restructuring.
But I do question whether a dollar crisis is inevitable. Had talk of a dollar crisis remained the exclusive dominion of us bears, I’d believe it was inevitable. But it’s not any longer. It’s practically on the verge of becoming polite cocktail banter. A crisis when so many expect a crisis? I doubt it. -ROSTENKO
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