Gold Price Sinks to One-Month Low, Down 12% for the Week, on "Heavy Fund Liquidation"

Gold Prices sank as European markets opened for business on Thursday, giving back a 2% rally in Asia to plummet towards a new one-month low, just shy of $906 per ounce.

Bouncing more than 12% beneath Monday's all-time record high of $1,034, the Gold Market then rallied to record an AM Fix in London of $913.50 per ounce – its lowest level since Feb. 18th.

Soft commodity and base metal prices also extended their losses, while crude oil slipped below $102 per barrel in after-hours US trade last night – down almost 8% from last week's all-time record high.

Asian stock markets were mixed; London and French equities fell; the German Dax held near break-even by lunchtime in Frankfurt.
 
"We have to see whether the [big investment] funds will continue selling," said Ronald Leung, head of Lee Cheong Gold Dealers in Hong Kong, to Reuters this morning.

"If they do, of course there is a possibility that Gold will go down and test $900."

Leung blames this week's 11% plunge on Tuesday's smaller-than-expected cut to US interest rates from the Federal Reserve, plus the "absence" of Japanese speculators willing to Buy Gold at lower levels.

Next week marks the end of the Japanese tax-year, a cautious period for Tokyo investment funds when they're more likely to close out gains than extend or establish new positions.

It's also signal that Wednesday's sharp fall coincided with the start of US dealing. Bullish gold futures traders – waking up to Comex margin calls after the initial 3% drop following the Federal Reserve's apparently "small" cut to interest rates of Tuesday afternoon – may well have been forced to liquidate their leveraged gold positions to cover losses elsewhere.

"It is likely that bargain buying could lift Gold Prices as there is still some upside risk to global financial markets," notes today's Precious Metals Daily from Walter de Wet at Standard Bank in Johannesburg.

That risk is "reflected by [wide] credit spreads" between corporate & financial vs. government bond yields. But given the "heavy fund liquidation...we envisage near-term weakness going forward" in precious metals, de Wet concludes.

Back in Hong Kong today, the stock market lost 3.6% by lunchtime, led down by an 8.4% loss in PetroChina – the world's largest energy stock by market-cap – which announced below-forecast earnings.

Zijin Mining Group, China's biggest gold producer, lost one-fifth of its value. In Sydney, Australia, Newcrest Mining – Asia's No.1 gold stock – lost 11% by the close.

Financial and export stocks listed in Tokyo, however, pushed the Nikkei index 2.5% higher as the US Dollar regained half-a-Yen to ¥99.65.

The European single currency fell to a one-week low of $1.5450, stemming the plunge in Gold Prices in Euros at €585.50 per ounce.

For British investors looking to Buy Gold today, the price bounced 10.5% below Monday's new record peak at £458 per ounce.

Today in London the Bank of England receive a formal request from the UK's biggest banks to offer extended "liquidity" loans to the London market in return for a wider range of higher-risk collateral.

"The Bank of England is keen to ensure we've for good, strong confidence in our banks," said Angela Knight of the British Bankers Association to the BBC this morning.

"After all, we've got good, strong banks."

At present, these "good, strong" banks will not lend freely to each other. The last auction of short-term money from the Bank of England was over-subscribed more than five times over.

The Bank of England today added an extra £5 billion to its regular weekly auction of short-term funds to commercial banks, taking the total cash on offer to £11bn ($21.8bn).

Apparent "scare-mongering" blamed on unscrupulous short-sellers created an 18% drop in HBOS – the UK's very biggest mortgage lender – on Wednesday. The Bank of England took the unprecedented step of telephoning London news agencies directly to say that it was not supporting any UK banks.

Many banking staff across the Square Mile have now been asked to work tomorrow's Good Friday holiday.

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Adrian Ash runs the research desk at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern and FT Deutschland; Italy's Il Sole 24 Ore, and many other respected finance publications.

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