US gold futures finished near a one-week low on Wednesday as funds frantically liquidated positions to cover margin calls amid steep losses, triggering a broad sell-off in commodities.
A sharply higher dollar versus the euro after hawkish comments from a European Central Bank official and signs of slowing demand for physical gold from top consumer India also weighed heavily on gold. With a recovering dollar, sliding energy prices and little support from buyers, the weakness in gold prices is expected to continue into on Thursday, dealers said.
"Today was the day traders, because of the significant move in the price of gold, had to answer margin calls. And it spread to other commodities. Nothing was immune from long liquidation today," said George Nickas, precious metals broker with FC Stone in New York.
"This most likely will continue into tomorrow before the dust settles," Nickas said. The most-active gold contract for February delivery at the Comex division of the New York Mercantile Exchange settled down $20.60, or 2.3 percent, at $882.00 an ounce.
It hit a high of $901.00. The session, the February contract had dropped as much as 3 percent to $875, which marked the weakest level since January 10. "People want to take some money off the table. Today the only thing that supported the market was some minor short covering," Nickas said.
Nickas also cited bearish signs about India's gold demand for Wednesday's weakness. India's Bombay Bullion Association said on Tuesday that the country's imports of gold in calendar year 2007 could have fallen by 20 percent due to a surge in prices. In 2006, India imported about 715 tonnes of gold. Meanwhile, the euro fell sharply after a European Central Bank official warned that growth could be slower than expected, increasing fears that US economic weakness may be spreading to Europe.
Gold is often viewed as an alternative to holding the dollar, and thus the value of gold usually falls when the United States dollar rises. "You have a record number of long contracts, so a move like this is expected," said Neal Greenberg, trader with RBC Proprietary Trading at Red Bank, New Jersey.
A further drop in crude oil prices dented the metal's appeal as a hedge against inflation. US crude futures settled $1.06 lower at $90.84 a barrel after on a sharp build in US crude stocks and rising concerns that economic problems could erode fuel demand in the world's top energy consumer.
Greenberg, however, said that a bullish research report by Goldman Sachs had helped gold initially. Goldman Sachs raised its 2008 gold price forecast, factoring in an expected US recession in the second and third quarters of the year that would lead to a weaker US dollar.
The brokerage raised its 2008 price forecast to $915 per ounce, compared with its previous view of $800. Goldman expects prices to range at around $850 at the end of the year as the US economy recovers. In late November, Goldman Sachs told investors to sell gold in 2008 to take advantage of falling prices as the dollar steadies, naming the strategy as one of its top 10 tips for next year. Trading was busy on Wednesday. Comex estimated final gold futures volume at 183,758 contracts, with gold options at 37,457 lots.
Total turnover in Chicago Board of Trade electronic 100-oz gold futures was 46,372 lots at 3:12 pm. At 2:15 pm, spot gold was quoted at $885.60/886.30 an ounce, down from Tuesday's New York close of $899.50/900.20.
London bullion dealers fixed the afternoon spot reference price at $889.75. Comex March silver closed down 40.5 cents, or 2.5 percent, at $15.895 an ounce, trading from $15.770 to $16.250. Spot silver was at $15.84/15.89, down from $16.10/16.15 late on Tuesday.
London silver was fixed at $15.85. April platinum ended down $18.40, or 1.2 percent, at $1,567.10. Spot platinum was quoted at $1,559/$1,564. March palladium dropped $6.65, or 1.7 percent, to finish at $377.85 an ounce and spot palladium was at $371/$375.
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