Gold Drop Caps Longest Slump Since March as Investors Sell to Raise Cash

Gold prices fell, capping the longest slump since March, as doubts about the strength of the economic recovery and Europe’s ability to contain a debt crisis prompted investors to sell commodities.

The Reuters/Jefferies CRB Index of 19 commodities fell to the lowest level in more than eight months on mounting concern that Europe’s debt will derail global growth and slash demand for raw materials. Investors also sold bullion to profit from this year’s rally to a record, analysts said.

“Money is just flying out of the commodities right now as part of the general liquidation happening in all the markets, and gold is getting hit along with that,” said Michael K. Smith, the president of T&K Futures & Options in Port St. Lucie, Florida. “Anytime there’s uncertainty, everyone goes to cash.”

Gold futures for June delivery dropped $4.50, or 0.4 percent, to $1,188.60 an ounce on the Comex in New York, capping a 3.2 percent slump since May 17. The three straight days of losses marked the longest slump since March 10.

The precious metal declined this week as commodities and stocks slid, prompting speculation that some investors sold bullion to cover losses in other assets. Gold has rallied for nine straight years, more than doubling since 2005, and touched a record $1,249.70 on May 14.

“Gold may have further to correct short term, having pushed to just short of $1,250 last week and been overbought on the charts,” James Moore, an analyst at TheBullionDesk.com in London, wrote in a report. Still, “we expect investors who missed the boat the first time may view the current dip as a buying opportunity,” he said.

Gold ‘Megatrend’

Prices have gained more than fivefold since 2000 on surging demand from investors seeking an alternative to currencies or a haven from financial turmoil. The metal is up 8.1 percent in the past two months as buyers sought to protect their wealth amid Europe’s debt crisis.

“The megatrend is still up, but the market needs to go through some minor correction,” said Wallace Ng, the executive director at Fortis Nederland NV in Hong Kong. “We will see more profit-taking on recent gains.”

Gold’s 14-day relative-strength index last week climbed above the level of 70 viewed by some analysts as a signal that prices may fall. It was about 51 today.

Holdings in the SPDR Gold Trust, the biggest ETF backed by bullion, increased 3.04 metric tons to a record 1,220.15 tons yesterday, according to the company’s website. Gold held in ETF Securities Ltd.’s European and Australian products climbed 1.2 percent to a record 8.541 million ounces yesterday. Silver holdings also reached a record.

Silver for July delivery fell 40 cents, or 2.2 percent, to $17.715 an ounce. Earlier, the price touched $17.485, the lowest level since May 7.

To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net; Millie Munshi in New York at mmunshi@bloomberg.net