Gold on Wednesday hit its lowest level in more than three months and silver touched its lowest in more than five months as risk-averse investors hurried to unwind yen carry trades, while a stronger yen pressured Tokyo precious metals futures.
Spot gold slipped to $640.50/640.90 an ounce as of 0635 GMT, from $642.00/642.60 late in New York on Tuesday, when it plunged more than $10. Earlier in Tokyo, gold fell as low as $638.90, the lowest since March 14.
Spot silver fell as low as $12.11 an ounce, the lowest since January 8, following a decline in gold and falls in copper prices. By late Tokyo trade, silver stood at $12.16/12.19 versus $12.24/12.27 in late New York on Tuesday.
The yen extended gains on Wednesday as worries about the US subprime mortgage sector and a warning against one-way bets by Japan's finance minister in the previous session crimped investors' appetite for yen carry trades.
Satoshi Matsunaga, an analyst at Mitsui Bussan Futures Ltd's investment strategy section, said investors had become risk averse, unwinding yen carry trades and fleeing from riskier assets including precious metals. "Behind the slump in the New York market is risk aversion," he said, adding that this was reflected in a fall of some 10 tonnes in gold bullion held by the StreetTRACKS exchange-traded fund.
"Unwinding of yen carry trades is going on," he said. Data on the world's largest gold ETF, StreetTRACKS gold shares NYS-listed in New York, showed that it held about 463 tonnes of bullion in its vault on behalf of investors on Tuesday, compared with about 474 tonnes of gold the previous day.
The popularity of carry trades - borrowing funds in low-yielding currencies such as the yen to buy higher-yielding assets - has been a major factor in the yen's broad slide against other currencies.
The dollar stood around 122.50 yen on Wednesday, retreating further from a 4-1/2-year high of 124.14 yen reached last week. A reversal in the yen's recent fall triggered a correction in precious metals futures on the Tokyo Commodity Exchange.
The most active gold futures contract for April 2008 delivery on TOCOM finished at 2,552 yen a gram, down 50 yen or 1.9 percent. It earlier fell as low as 2,551 yen, the lowest for any benchmark since April 3. The newly listed June futures contract ended at 2,558 yen after opening at 2,570 yen.
Cash platinum hit a more than three-week low of $1,261 an ounce. It stood at $1,267/1,272, compared with $1,265/1,269 late in New York on Tuesday, when it fell more than $10. Matsunaga said investors now were well aware of a barrier at $1,300 for platinum, given another surplus estimate for 2007 by commodities research and consulting firm CPM Group.
CPM Group said its 2007 Platinum Group Metals Yearbook released late on Tuesday that surplus in the platinum market is expected to increase to 897,000 ounces in 2007 from 635,000 ounces in 2006. But CPM said it expects higher prices of the platinum metals group to continue throughout the remainder of this year despite higher supplies.
Platinum should average $1,235 an ounce in 2007 with a range of $1,175 to $1,425, Jeffrey Christian, CPM's managing director, told Reuters on the sidelines of a presentation of the Yearbook. The most active April platinum futures contract on TOCOM closed at 4,968 yen a gram, down 65 yen or 1.3 percent from the previous close.
On Monday, the April contract hit a record high for any benchmark of 5,117 yen as a weakening yen versus the dollar spurred more buying. Supply concerns stemming from a labour dispute in South Africa had underlined the bullish mood.
But a sudden appreciation in the yen following comments on Tuesday by Finance Minister Koji Omi suggesting concerns about the pace of the yen's slide has stopped a rally in yen-based futures prices.
The most active June silver futures contract fell 1.3 percent to 483.6 yen a gram. The contract, which was listed on Wednesday, opened at 490 yen. October to April contracts closed down by the daily 18-yen limit. Spot palladium fetched $364/368 an ounce versus $363.20/367.20.
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