Gold Rebounds as Equity Slump Revives Demand for Precious Metal as a Haven
Gold rebounded in New York, halting the biggest decline since 2008, as slumping global equities revived the appeal of the precious metal as a haven asset.
Global stock markets fell, sending the MSCI World Index of equities down as much as 1.4 percent, as French, Italian and Spanish regulators extended temporary bans on short selling introduced this month. Gold prices tumbled 7.1 percent in the previous two sessions, after gaining as much as 18 percent this month to an all-time high of $1,917.90 an ounce on Aug. 23.
“Gold is making a comeback,” said Adam Klopfenstein, a strategist at MF Global in Chicago. “Flight-to-quality fears still persist, and gold is putting on its risk-aversion hat.”
Gold futures for December delivery gained $5.90, or 0.3 percent, to settle at $1,763.20 at 2:03 p.m. on the Comex in New York. Earlier, the metal fell as much as 3 percent to $1,705.40 and was headed to the biggest three-day slump since October 2008.
“Sellers tried to force gold under $1,700 and couldn’t, so the funds came back,” said Frank McGhee, the head dealer at Integrated Brokerage Services in Chicago. “This is long-term buying against the equities.”
The Standard & Poor’s 500 Index fell as much as 1.8 percent today, heading for the first decline this week. The index dropped 16 percent in the previous four weeks.
The metal is up 24 percent this year, headed for the 11th straight annual gain as investors seek to diversify away from equities and some currencies.
Hoarding Bullion
Central banks are adding to reserves for the first time in a generation, joining billionaire investors including John Paulson in hoarding bullion. The Federal Reserve has taken the unprecedented step of saying it will keep borrowing costs at almost zero percent at least through mid-2013 to support the economy.
Yesterday, the value of a 100-ounce futures contract plunged $10,400, more than the $7,425 margin requirement that day, prompting exchange-owner CME Group Inc. to increase the minimum cash deposit on trades.
“It looks nasty, but this is a normal correction given the magnitude of the move,” Matt Zeman, a strategist at Kingsview Financial in Chicago, said in a telephone interview. “The parabolic move finally collapsed.”
The 10-day historical volatility for gold futures jumped to 40 percent, the highest level since March 2009, data compiled by Bloomberg show.
Margin Moves
Gold’s surge and decline are similar to moves in silver earlier this year, John Roque, WJB Capital Group’s senior technical analyst, said in a note to clients.
The CME made a series of margin increases in April for silver, which fell as much as 35 percent in the following three weeks. The price touched a 31-year high of $49.845 an ounce on April 25 and fell as low as $32.30 on May 12.
“Gold has some support at $1,700, but it wouldn’t surprise us to see the metal retest its last breakout level at $1,580,” Roque said.
Gold is still trading above its 200-, 100- and 50-day moving averages. The price is below the 20-day moving average of $1,743.50.
Silver futures for December delivery rose $1.592, or 4.1 percent, to close at $40.793 on the Comex. The metal has gained 32 percent this year.
On the New York Mercantile Exchange, platinum futures for October delivery fell $3.90, or 0.2 percent, to $1,822.40 an ounce. Palladium futures for December delivery rose $8.10, or 1.1 percent, to $753.20 an ounce.
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net
To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net
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