Gold dropped for the first time in seven sessions in London as some investors sold the metal after concerns about slowing economic growth pushed prices to a record above $1,910 an ounce.
Bullion is up 16 percent in August, heading for its best monthly performance since September 1999. European services and manufacturing growth held in August at the slowest pace in almost two years and a report today may show falling new-home sales in the U.S. Gold touched an all-time high on speculation Federal Reserve Chairman Ben S. Bernanke will signal additional measures to stimulate the economy later this week and as debt crises spurred demand for a protection of wealth.
Gold’s rally in the past several weeks “surprised most in the market, even those in the most bullish camp,” Edel Tully, an analyst at UBS AG in London, said today in a report. “Given the speed of the recent rally, the possibility of a correction is rising as investors look to bank profits. Even if a $150 or more pullback were to materialize, we’d strongly view it as a good buying opportunity.”
Immediate-delivery gold fell $15.78, or 0.8 percent, to $1,881.82 an ounce by 9:57 a.m. in London, erasing a gain of as much as 0.8 percent to $1,913.50. It’s up 32 percent this year. Gold for December delivery was down 0.4 percent at $1,884.80 on the Comex in New York after touching a record $1,917.90.
Bullion is in the 11th year of a bull market, the longest winning streak since at least 1920 in London, as investors seek to diversify their holdings away from equities and some currencies. Bullion reached all-time highs in euros, British pounds and Swiss francs today.
Gold’s relative strength index has topped 70 since Aug. 5, a signal to some investors who study technical charts that prices may be set to decline. Exchange-traded-product holdings fell for a second day yesterday, sliding 4.7 metric tons to 2,206.4 tons, data compiled by Bloomberg show. Assets reached a record 2,216.8 tons on Aug. 8.
UBS raised its one-month gold forecast to $1,950 an ounce from $1,725 and increased its three-month outlook to $2,100 from $1,850. The bank’s physical sales yesterday to India, the top global buyer, were the highest since May 10, Tully said.
Treasuries surged in August on concern the world’s biggest economy is faltering. Bernanke is scheduled to speak Aug. 26 in Jackson Hole, Wyoming, at an annual conference sponsored by the Fed Bank of Kansas City.
“Things aren’t looking particularly positive,” said Darren Heathcote, Sydney-based head of trading at Investec Bank (Australia) Ltd. “The market is very, very skittish. It wouldn’t surprise me to see gold push higher in the current environment.”
The Shanghai Gold Exchange said it will raise margin requirements for its gold forward contracts to 12 percent from 11 percent from settlement on Aug. 25. CME Group Inc. the largest futures market, hiked margins earlier this month.
Silver for immediate delivery declined 1.4 percent to $43.155 an ounce after earlier today touching $44.25, the highest price since May 3. It’s up 40 percent this year.
“Those who have missed out on the last few-hundred-dollar rally in the gold price perhaps believe that gold is near its short-term peak,” UBS’s Tully said. “Instead of playing gold from the short side, they prefer buying silver. That trade may well extend this week.”
Platinum was down 0.3 percent at $1,897.50 an ounce after reaching $1,916.75, the highest price since July 2008. Palladium was unchanged at $764 an ounce.
Source: Nicholas Larkin (Bloomberg)