Gold Futures Drop to 19-Month Low of $399.20
Gold closed below $400 an ounce for the first time since February, 1987, in New York on Wednesday after being battered by selling throughout the day.
Gold futures for October delivery fell $7 to $399.20 an ounce on the Commodity Exchange after trading as low as $397. Bullion was quoted at $398.45 an ounce in late afternoon trading.
“If this continues, gold could fall to $320 to $325 within a month,” said a trader with a major firm.
“There is no reason to hold something that is a non-performer,” said a gold dealer with a major U.S. bank, noting that gold has been in the doldrums since spot prices peaked at $469.50 in early June.
The price declines were initially sparked overseas by lower crude oil prices, which eased concerns about inflation. Gold is traditionally held as a hedge against inflation.
Oil prices later firmed in New York but gold continued to slip. “There wasn’t any panic selling, it was more of a controlled free fall,” said one Comex floor broker.
John Rosko of Stanley B. Bell Inc. said the absence of panic selling in New York as gold broke through the $400 psychological barrier suggested that the drop had been widely expected after flat inflation signals.
In recent weeks, the government has issued several economic indicators suggesting that the U.S. economy is slowing to a pace that makes a sharp acceleration in inflation less likely.
Wednesday’s reports that U.S. housing starts fell 3.3% in August while personal incomes grew just 0.2% appeared to support expectations of more restrained inflation, economists said. The government also said Wednesday that consumer prices rose 0.4% in August, the same moderate pace as in July.
Analysts said gold recovered briefly in the afternoon but the buying interest was from traders who had taken short positions earlier and were taking profits.
Gold initially snapped the $400 barrier in early European trading. In London, gold bullion closed at $402 an ounce, also its lowest close since February, 1987. The metal was at $401.60 at the London morning fix and at $400.65 an ounce at the afternoon fix.
“There has definitely been a significant slowdown in investor interest in gold,” said one London gold analyst.
Gold has fallen more than $20 an ounce in the last week. Gold analysts said the precious metal could fall to $395 an ounce before bargain hunting possibly could spur new buying.
Other Metals Drop
George Nickas of Geldermann Inc. detected a wait-and-see attitude among investors in New York. “Until the U.S. presidential contest is put more into focus, the uncertainty over the country’s leadership will delay a substantial recovery in gold,” he said.
Silver and platinum futures fell in sympathy with gold. Silver for December delivery fell 7.7 cents to $6.28 an ounce on Comex. Platinum for October delivery dropped $9.80 to $485.10 an ounce on the New York Mercantile Exchange.
Gold was fixed for decades at $35 an ounce until 1968 when a two-tier market was instituted. The free-market price began to climb after President Richard M. Nixon stopped the dollar’s convertibility with gold in 1971.
Gold prices peaked in January, 1980, at about $850 an ounce as U.S. inflation was raging. But the price descended after Paul A. Volcker, then-chairman of the Federal Reserve Board, tamed inflation by tightening U.S. monetary policy, lifting interest rates above 20%.
Gold’s fall caused ripples in the financial community in South Africa, the world’s top producer and exporter.
Economists said a sustained drop in prices could affect Johannesburg’s foreign exchange earning capacity and undermine its ability to keep up heavy foreign debt repayments.