Gold Price Falls $13.40 as Deflation Fears Spread : Commodities: The ‘safe-haven’ metal skids to its lowest level since July. Global recession fears are blamed.
Gold prices worldwide plunged Tuesday as heavy dumping by key traders heightened recession fears and extended Monday’s big losses.
Gold for December delivery fell $13.40 an ounce to close at $365.10 on the New York Commodity Exchange, after dropping $12.80 on Monday.
The metal has been as high as $417 an ounce since the Persian Gulf crisis began, but Tuesday’s fall bought the price to its lowest since July, and some traders predicted that a further fall may be ahead.
The initial downward pressure came from several big Mideast investors, who traders said included the National Commercial Bank of Saudia Arabia. Prices fell $15 an ounce in early New York trading.
“People saw what was happening and said, ‘Get out of the way,’ ” said John Sack, first vice president of the futures division of the Shearson Lehman Bros. investment firm.
Gold has been steady in recent weeks as panic over the Persian Gulf situation has subsided. But in the last several days, fears of a global recession have grown. Recession is often accompanied by deflation, which cuts the value of all commodities and can hit the traditional inflation hedge of gold particularly hard.
In addition, recession cuts the demand for gold to be used in jewelry.
Al Pugliesi, chief bullion dealer at Julius Baer & Co. in New York, said the selling by Mideast investors sent a particularly bearish signal to the market. “They’re in the middle of the crisis there, and if they don’t want gold, who would?” he asked.
While war continues to be a strong possibility in the Mideast, there has not been enough panic recently to counterbalance the other factors that are dragging down gold’s price, traders said. In addition, producer countries, such as the cash-strapped Soviet Union and South Africa, continue to sell the metal, further depressing prices.
Traders said selling was particularly heavy in London just before business opened in New York. Some said 500,000 ounces were sold in that period.
Traders said many professional investors were hurt when they bought gold just after Iraq’s invasion of Kuwait, hoping that prices would continue to rise. But prices fell within days of the Aug. 2 invasion, and many investors who have suffered have pulled back from the market altogether.
“People are running with their tails tucked between their legs,” said Denise Giordano, manager of Swiss Bank Corp.’s bullion desk in New York. “When prices come down like today, there’s just no one there to buy.”
Gold is a traditional haven of investors worried about international crises. But Giordano said recent news simply hasn’t been bad enough to do much for the gold bugs of the world.
“Only a real shooting war in the Mideast would do it,” she said. “People are worried about the solvency of the financial institutions in this country, but not nearly worried enough to help gold prices.”
Gold prices peaked at $851 an ounce in 1980, during the Iranian hostage crisis, Pugliesi said. The price hit nearly $500 an ounce after the October, 1987, stock market crash.
The ills of the gold market have caused a significant retrenchment among investors and trading firms. Citibank recently stopped acting as an interbank market maker in the gold market and now trades only for its customers or for its own account.
Philipp Bros., the big trading firm, also scaled down its activities last winter.
But some analysts still hold out hope that declining world production of gold in the 1990s will restore demand and revive the market.
Spot silver was quoted late Tuesday in New York at $4.17 an ounce, up 1 cent.
GOLD PRICES
Price perr troy ounce, December contract on the New York Commodities Exchange.
