NEW YORK – Gold plunged the most in 33 years Monday amid record-high trading as an unexpected slowdown in China’s economic expansion sparked a commodity selloff from investors concerned that more cash will be needed to cover positions.
Gold rebounded slightly Tuesday, rising 1.9 percent.
On Friday, gold slumped into a bear market on concern that Cyprus may sell bullion holdings to cover a bailout, and the Federal Reserve signaled that U.S. monetary stimulus may be scaled back this year. Holdings in the SPDR Gold Trust, the biggest exchange-traded product backed by the metal, have tumbled to the lowest in almost three years, and hedge funds have cut bets on higher prices by 72 percent since mid-October.
“Gold took a beating today because of margin calls” expected on the Comex, Frank McGhee, the head dealer at Integrated Brokerage Services in Chicago, said in a telephone interview Monday. “The Chinese number was the final nail on the head with people exiting from all commodities, including gold.”
Gold futures for June delivery slumped 9.3 percent Monday to close at $1,361.10 at 1:51 p.m. on the Comex in New York, the biggest drop for a most-active contract since March 17, 1980. After the settlement, the price touched $1,348.50, the lowest since Feb. 7, 2011. Estimated trading on all contracts was 684,502 contracts at 4:10 p.m., topping the previous record of 486,315 contracts on Nov 28.
This year, silver has tumbled 23 percent, and gold has slumped 19 percent, the most among the 24 raw materials in the Standard & Poor’s GSCI Spot Index.
Following a 12-year rally, the turn in the gold cycle is quickening and investors should sell, Goldman Sachs said April 10. Equities climbed to a record last week, and some Fed policy makers favor pulling back this year on $85 billion in monthly debt purchases.
Gold slid 4.1 percent on Friday, taking losses to more than 20 percent since the record close in August 2011 and meeting the common definition of a bear market.
“We could see a severe correction in gold, even spilling over into silver and the platinum metals group,” Peter Sorrentino, who helps manage about $14.7 billion of assets at Huntington Asset Advisors in Cincinnati, said in an email. “I reduced our holding some weeks back, and regret now not selling more.”
An April 9 debt assessment by the European Commission said Cyprus had committed to selling about 400 million euros ($525 million) of “excess” gold reserves. In response to the disclosure, the Central Bank of Cyprus said it wasn’t considering a sale. It owns 13.9 metric tons, according to the World Gold Council. That’s valued at about $622 million.
“Some of the key pillars of the gold bull market look like they’re suffering fatigue,” Peter Richardson, an analyst at Morgan Stanley, said by telephone from Melbourne. “The gold market’s probably started to price in the prospect that beleaguered members of the euro zone might be forced to sell gold to raise part of the funding, and there are much bigger holders in that category than Cyprus.”