Bloomberg News

Gold Drops on Investor Sales to Cover Losses in Equity Slump

September 12, 2011

Sept. 12 (Bloomberg) -- Gold futures fell for the first time in three sessions as some investors sold the metal to cover losses in equities that dropped on concerns that the European debt crisis is escalating.

Stocks slumped globally on speculation that German Chancellor Angela Merkel is preparing for a Greek default, leaving a gauge of global equities poised for a bear market. The dollar climbed to the highest level in more than six months against six major currencies. Gold touched an all-time high of $1,923.70 an ounce on Sept. 6 and today set records priced in euros and Swiss francs.

“The margin clerks will be sharpening their knives today and will take dead aim even upon gold if that is where they think they can find liquidity,” Dennis Gartman, an economist and the editor of the Suffolk, Virginia-based Gartman Letter, said in his daily report. Some investors “will argue that gold will prove valuable and will hold its value even as stock prices plunge, and in the long run they may well be right.”

Gold futures for December delivery fell $46.20, or 2.5 percent, to settle at $1,813.30 at 1:30 p.m. on the Comex in New York. The price rose 2.3 percent in the previous two sessions.

The metal is in the 11th year of a bull market, the longest winning streak since at least 1920 in London, as investors seek to diversify away from equities and some currencies. Gold is up 28 percent this year, beating global stocks, commodities and Treasuries. The MSCI All-Country World Index of shares fell as much as 2.5 percent today, extending its drop from its 2011 high to 21 percent.

Germany’s Banks

Merkel’s government is debating how to shore up German banks in the event that Greece fails to meet the budget-cutting terms of its aid package and is unable to get a bailout-loan payment, three officials in Merkel’s coalition said on Sept. 9.

BNP Paribas SA, Societe Generale SA and Credit Agricole SA, France’s largest banks by market value, may have their credit ratings cut by Moody’s Investors Service as soon as this week because of their Greek holdings, two people with knowledge of the matter said.

“While gold is capable of rallying in the face of a strong dollar, an extended upward move in the dollar does put some obstacles in its path,” Edel Tully, a London-based analyst at UBS AG, wrote in a report. Still, “gold should benefit from the scaling back of risk appetite on what appear to be rising fears of a Greek default, contagion to the rest of the periphery, and the impact on banks.”

Gold exchange-traded-product holdings rose on Sept. 9 for the first time since Aug. 30, gaining 11.8 metric tons to 2,149.8 tons, data compiled by Bloomberg show. Assets reached a record 2,216.8 tons on Aug. 8.

Silver futures for December delivery slipped $1.407, or 3.4 percent, to $40.217 an ounce on the Comex.

Platinum futures for October delivery dropped $28.50, or 1.6 percent, to $1,809.40 an ounce on the New York Mercantile Exchange. Palladium futures for December delivery lost $27.25, or 3.7 percent, to $711.35 an ounce.

Spot gold at $1,815.30 was $7.30 an ounce above spot platinum at 5 p.m. The 2010 average price for platinum was $386 above gold.

--With assistance from Glenys Sim in Singapore and Elizabeth Campbell in Chicago. Editors: Patrick McKiernan, Steve Stroth

To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net.


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