Gold and silver futures tumbled the most in three weeks as the dollar climbed, eroding the appeal of precious metals as an alternative asset.
The greenback rose for the third straight day against a basket of six major currencies on speculation that an extension of tax cuts will spur the U.S. economy. Gold has gained 26 percent this year, reaching a record $1,432.50 an ounce yesterday.
“Gold is dominated by short-term traders at the moment,” said Frank Lesh at FuturePath Trading LLC in Chicago. “Big players have taken a profit after record highs, and the dollar has stabilized, so short-term traders will sell gold and commodities.”
Gold futures for February delivery dropped $25.80, or 1.8 percent, to settle at $1,383.20 at 1:48 p.m. on the Comex in New York, the biggest decline for a most-active contract since Nov. 16.
Silver futures for March delivery tumbled $1.525, or 5.1 percent, to $28.252 an ounce, the biggest decline since Nov. 12. Yesterday, the price reached $30.75, the highest since March 1980. The metal has jumped 68 percent this year.
Record silver-coin sales and investment in exchange-traded products backed by the metal may signal a peak in the rally, said Matthew Zeman, a metal trader at LaSalle Futures Group in Chicago.
‘Big Players’ May Sell
“Once you suck in all the little people, that’s when the big players will take the opportunity to sell,” Zeman said.
Silver holdings in ETPs jumped 136.17 tons to 15,009.54 tons, data from four providers show. That marked the biggest gain in almost a month and the highest amount since at least February.
Gold assets in ETPs rose 2.22 metric tons to 2,101.37 tons yesterday, the highest since Oct. 15, according to data compiled by Bloomberg from 10 providers. Holdings reached a record 2,104.65 tons on Oct. 14.
ETPs backed by silver represent a “new species of Hunt Brothers” that could be a “potential threat” to trading, said Jon Nadler, a senior economist at Kitco Inc. in Montreal.
The metal reached a record $50.35 on the Comex in 1980, a year after the Hunt brothers tried to corner the market.
Gold may fall because of China’s moves toward monetary tightening, Tom Pawlicki, an analyst at MF Global Holdings Ltd. in Chicago, said in a report.
The decline may be an opportunity to buy, said Dennis Gartman, an economist and the editor of the Suffolk, Virginia- based Gartman Letter. He recommends investors purchase gold priced in euros, U.K. pounds and yen to hedge against relative dollar strength.
Palladium futures for March delivery declined $9.75, or 1.3 percent, to $728.95 an ounce on the New York Mercantile Exchange, the third straight decline. On Dec. 3, the price reached $780, the highest since April 2001. The metal has jumped 78 percent this year.
Platinum futures for January delivery dropped $23.80, or 1.4 percent, to $1,681.40 an ounce. The price has advanced 14 percent this year.