LONDON – (Reuters) – Gold dropped 6 percent on Monday to below $1,400 per ounce, its lowest since March 2011, as investors took fright at a market that is heading for its biggest two-day fall in 30 years.
Gold has capitulated in the last two trading days to pressure from a proposed sale of Cypriot gold holdings and concern that other nations might follow suit. Traders also cited concern that the U.S. Federal Reserve might reduce monetary stimulus towards the end of the year.
“You can’t stand in front of a steam train – the market has to run itself out and then I think you will see some meaningful correction towards the $1,510-$1,525 level,” said Gerhard Max Schubert, head of commodities at Emirates NBD bank in Dubai.
Weaker than expected Chinese economic data earlier on Monday simply gave investors another excuse to slash holdings as other commodities including oil and copper dived.
Spot gold dropped as low as $1,384.69 an ounce before recovering slightly to $1,406 during afternoon trading, still down nearly 5 percent. Gold is on course to record the biggest two-day fall since 1983.
U.S. futures for June delivery fell more than six percent to $1,385, the largest daily drop since June 2006.
“We are entering a phase of additional long liquidation by ETF investors and short-selling from hedge funds, which will continue in the foreseeable future,” Saxo Bank senior manager Ole Hansen said.
“Purely looking at the charts, support would now be at $1,300, which would equate the 50 percent retracement from the rally from the Lehman crack in 2008 to the September 2011 record high.”
Other precious metals were also hit by heavy selling, with silver falling to its lowest since October 2010, platinum at its weakest since August last year, and palladium hitting a three-month low.
By contrast, hedge funds and money managers raised their net longs in gold futures and options in the week to April 9, a report by Commodity Futures Trading Commission (CFTC) showed on Friday.
Investors cut exposure to gold, with total holdings at the world’s major bullion gold-backed exchange-traded-funds falling to their lowest since early 2012.
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