Bloomberg News

Gold Tumbles Most in Three Weeks on Fiscal-Cliff Concerns

November 28, 2012

Gold, Silver Slump Most in Three Weeks on Fiscal Cliff Concern

Gold and silver fell the most in more than three weeks as the dollar gained amid concern that budget talks to avoid the U.S. fiscal cliff are making little progress. Photographer: Chris Ratcliffe/Bloomberg

Gold futures fell the most in three weeks as pessimism on a U.S. budget resolution eroded demand for commodities.

On the Comex in New York, gold futures for February delivery tumbled 1.5 percent to settle at $1,718.80 an ounce at 1:38 p.m., the biggest drop for a most-active contract since Nov. 2. In the first 30 seconds of floor trading, 7,700 contracts traded, according to PVM Futures Inc.

The Standard & Poor’s GSCI Spot Index of 24 raw materials fell as much as 1.4 percent, erasing this year’s gain. Erskine Bowles, the co-chairman of President Barack Obama’s 2010 fiscal commission, said that a deal with Congress to avert the so- called fiscal cliff is unlikely by the end of this year.

“There’s ‘risk-off’ trading, and behind that is talk of the fiscal cliff becoming more of a reality than people had thought,” Harry Denny, a broker at Hoboken, New Jersey-based PVM, said in a telephone interview. “The fiscal-cliff resolution has everyone a little cautious.”

An estimated 437,259 futures contracts traded as of 2:26 p.m. Total volume rose to a record 484,721 on May 29. Through yesterday, the daily average was 176,000 this year. Floor trading starts at 8:20 a.m.

The most-traded gold options yesterday were bets on further price drops. Exchange data show 9,573 put options traded, giving owners the right to sell at $1,700 on the Comex by January. That compares with 461 contracts a day earlier. Each contract is for 100 ounces. The next-most-traded contracts were January puts giving owners the right to sell at $1,690 and at $1,695.

Put Options

The increase in put-options trading contributed to today’s slump, Dave Lutz, the head of exchange-traded fund trading and strategy at Stifel Nicolaus & Co. in Baltimore, said in a telephone interview.

The decline in futures was also fueled by algorithmic- trading programs, said Carlos Perez-Santalla, a broker at PVM.

Holdings in gold-backed exchange-traded products climbed 5.1 metric tons to a record 2,612.1 tons yesterday, data compiled by Bloomberg show. This month, the U.S. Mint has sold 75,500 ounces of American Eagle gold coins, the most since January, data on its website show.

Gold has advanced 9.7 percent this year, heading for the 12th straight annual gain. The price reached a record $1,923.70 on Sept. 6, 2011, as global interest rates remained low, enhancing the appeal of the metal as an alternative investment. Debt woes in the U.S. and Europe also triggered demand for a haven from slumping currencies.

‘Counter-Intuitive’

The decline in futures “is counter-intuitive with everything else that is going on in the economy,” Ross Norman, the chief executive officer of Sharps Pixley Ltd., a brokerage in London, said in a note.

Silver futures for March delivery fell 0.9 percent to $33.77 an ounce on the Comex, the biggest decline since Nov. 16.

On the New York Mercantile Exchange, platinum futures for January delivery dropped 0.4 percent to settle at $1,611.70 an ounce.

Palladium futures for March delivery climbed 0.8 percent to $675.20 an ounce. Earlier, the price dropped as much as 3.5 percent.

To contact the reporters on this story: Debarati Roy in New York at droy5@bloomberg.net; Joe Richter in New York at jrichter1@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net


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