NEW YORK–Gold plummeted to its lowest level in more than two years as traders rushed to sell their holdings following a big price drop on Friday.The precious metal has plunged almost $200 over the past two days and is trading below $1,400 an ounce for the first time since February 2011.
The sell-off started Friday when the US government reported that wholesale prices fell in March by the most in ten months. Investors had been buying gold in anticipation of a pickup in inflation. With prices now falling, the attraction of the metal as an alternative investment has waned.
The gold market was also rattled by a proposal last week that Cyprus sell some of its gold reserves to support its banks. Traders worry that Spain, Italy and other weak European countries might follow suit, flooding the market with excess supply just as demand for the metal is weakening."This is panic, this it isn't organized at all," said Phil Streible, a senior commodities broker at RJ O'Brien Futures. "If you look at Italy or Spain....if they start liquidating, that's when you get serious movements."
The price of gold plunged $133, or 8.9 per cent, to $1,368 an ounce in midafternoon Monday. The price of the metal has dropped about 12 per cent in the last two days. Gold peaked at $1,900 an ounce in September 2011 during the market turmoil that followed a downgrade to the U.S. government's credit rating.
Gold has been declining from a recent high of $1,792 on Oct. 4 as the outlook for the US economy improved, diminishing the metal's appeal as a safe haven investment.Some Federal Reserve officials have also been calling for an early end to the central bank's bond-buying programme. If that happens, it would likely cause US interest rates to rise, resulting in an appreciation of the US dollar.
AP