Sunday 30 April 2017

Gold plunges 5pc, the most in two years, as investors flee 'haven'

commodities

Until this week, traders in New York had been doing brisk business buying gold from members of the public
Until this week, traders in New York had been doing brisk business buying gold from members of the public

Frank Tang and Jan Harvey

GOLD plunged in New York yesterday, heading for its biggest drop in 18 months, on speculation that financial markets may be stabilising, so eroding the appeal of the precious metal as a haven.

The metal dropped nearly $150 between Tuesday and Wednesday as investors took profit after bullion prices earlier this week hit a nominal record high.

The metal was trading at $1,783 an ounce as news of a sharp rise in US manufacturing goods orders prompted more profit-taking on bullions to record highs ahead of a Federal Reserve gathering in Jackson Hole this week.

It had rallied nearly 9pc in six sessions before Tuesday's fall on speculation that the Federal Reserve might be planning another round of stimulus for the sluggish US economy.

Analysts said it was time for gold investors to take money off the table after a safe-haven rally had extended too far, too fast in recent weeks. Bullion had risen by as much as $400 since July.

"The correction really should be taking place now because of all the (bets) on the table," said Ashok Shah, chief investment officer at London & Capital.

"But the journey is not complete until Jackson Hole is done," Shah said, referring to an annual central bank conference in Wyoming, starting today.

Silver also dropped 2.8pc to $40.64 an ounce. While analysts predicted that gold would remain in a structural uptrend, they said a sharp correction from this month's rally was possible, especially if the central bank meeting at Jackson Hole does not result in a Fed announcement of a third round of government bond buying or quantitative easing (QE3).

"Hopes that QE3 will continue to prop up commodity prices are at best premature. Gold is perhaps most vulnerable to disappointment," Capital Economics strategists said in a note.

Meanwhile, the London market continued its nervous rally yesterday after sentiment was boosted by better-than-expected economic data from the United States.

Bullion

The FTSE 100 Index rose 76.4 points to 5205. Both the Paris CAC and German Dax also closed up. Strong mining and energy stocks helped drive Britain's top share index to its highest close in a week as investors jostled for position ahead of a speech by Federal Reserve Chairman Ben Bernanke on Friday. The Dow Average made slight gains.

after surging ahead 3pc on Tuesday. Markets have pushed higher this week, helping them regain some of last week's losses.

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