Gold Plunges to Lowest Since July 2011, Enters Bear Market

Gold tumbled to the lowest price since July 2011, slumping into a bear market, on signs that investors are favoring the dollar and equities as the global economy recovers. Silver dropped the most since June.

The dollar rose as much as 0.5 percent against the euro today, and the Standard & Poor’s 500 Index of shares reached a record yesterday. Cyprus may sell gold holdings to cover possible losses from emergency loans.

Holdings in the SPDR Gold Trust, the top exchange-traded fund backed by bullion, reached 1,181.4 metric tons yesterday, the lowest in almost three years. Prices are down 10 percent in 2013 as global economies improved. The Federal Reserve indicated April 10 that several policy makers favor pulling back this year on $85 billion in monthly debt-buying stimulus dubbed quantitative easing. Through 2012, the metal rallied for 12 straight years as central banks expanded their balance sheets.

“On the basis that the global economy is slowly getting better, that’s a negative for gold, and the Fed may be stepping off the QE pedal,” Robin Bhar, an analyst at Societe Generale SA in London, said today in a telephone interview. “All the positive factors that have been in place for gold are now going into reverse.”

Gold futures for June delivery plunged 4.1 percent to settle at $1,501.40 an ounce at 1:45 p.m. on the Comex in New York. The metal is down 21 percent from a record settlement of $1,891.90 in August 2011, meeting the common definition of a bear market.

Trading Surge

Prices declined as much as 4.7 percent to $1,491.40, the lowest since July 5, 2011.

Futures trading was more than double the average in the past 100 days for this time of day, data compiled by Bloomberg show.

Goldman Sachs Group Inc. said this week that the turn in the gold-price cycle is accelerating after the 12-year rally as the recovery in the U.S. economy gains momentum. The bank reduced forecasts for the metal through 2014. Deutsche Bank AG cut its 2013 gold outlook this week by 12 percent, citing a strengthening dollar and a lack of haven buying, and Societe Generale said in an April 2 report that gold is in a “bubble.”

European Central Bank President Mario Draghi said the profits of any gold sales by the Cypriot central bank must be used to cover losses it may sustain from emergency loans to Cypriot commercial banks. He spoke after a meeting of euro-area finance officials today.

An April 9 debt assessment by the European Commission said that Cyprus had committed to selling around 400 million euros ($523 million) of “excess” gold reserves. The Cypriot central bank responded to that disclosure by saying it hadn’t discussed plans for a sale.

‘Heavy Weight’

The possibility of Cyprus selling gold “is a heavy weight on the market, and could set a bad precedent for other central banks looking to relieve pressures from austerity measures,” Dave Lutz, head of exchange-traded fund trading and strategy at Stifel Nicolaus & Co. in Baltimore, said by telephone. “Gold is breaking down pretty good here. The sentiment is getting bad on gold. It may be too extreme.”

The Cypriot central bank manages 13.9 tons of the metal, according to the World Gold Council. Central banks added 534.6 tons to gold reserves last year, the most since 1964, the London-based council estimates.

“Central banks have been buyers in past years, so this would be a change in market dynamics,” said Dan Denbow, a fund manager at the $1.3 billion USAA Precious Metals & Minerals Fund in San Antonio. “Several banks cut their gold forecasts this week, and that just piles on to the sentiment that people are allocating assets away from gold.”

No More Haven

Gold has ceased to be the haven for investors after the precious metal fell when the euro was close to collapse last year, billionaire investor George Soros said in an interview with the South China Morning Post posted April 8.

Silver futures for May delivery dropped 4.9 percent to $26.331 an ounce in New York, the biggest loss since June.

On the New York Mercantile Exchange, platinum futures for July delivery slid 2.6 percent to $1,495.90 an ounce. Palladium futures for June delivery fell 3.3 percent to $709.10 an ounce.

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