Gold bullion down 10% in two days, nears US$1,400 an ounce after latest drop

TORONTO – Gold plunged again Monday, continuing a months-long trend that accelerated last week — taking the glitter off bullion as an investment.

On the New York Mercantile Exchange, June gold futures were down $97.50 at US$1,403.90 an ounce Monday morning following a $63 drop on Friday. The price had been as low as US$1,385 earlier Monday.

The massive price drop came amid a general meltdown for commodities such as oil and copper following data that showed weaker that expected economic growth in China.

Commenting on the “collapse” of gold prices, Scotiabank chief foreign currency strategist Camilla Sutton said in a commentary that the day’s focus was likely to be on developments in the gold market “with worries of forced liquidations a concern for markets.”

“Gold has fallen over 10 per cent over the last two sessions sparking fears of massing margin calls,” Sutton said.

“Potential European central bank selling combined with two major banks issuing sell recommendations last week seem to have sparked the sell-off.”

Sutton was referring to speculation that Cyprus may sell a chunk of gold reserves to finance its part of its financial rescue.

Though that may not materialize, it was enough to prompt some investors to think that a gold-selling strategy may be used elsewhere in the troubled eurozone.

Another reason put forward is that the Federal Reserve will outline a strategy to withdraw its monetary stimulus later this year despite recent mixed signals out of the U.S. economy, the world’s largest.

One of the reasons why the price of gold has been so well-bid in recent years is a direct result of the Fed’s policy — the new dollars created under so-called quantitative easing have found themselves recycled in financial markets and many of them have gone to the perceived haven of gold.

“Investors are clearly turning away from gold here, using the price action as justification for unwinding positions and taking capital away from what was once considered as almost a one-way bet,” said David White, a trader at Spreadex.

“Even those naturally contrarian are struggling to find reasons to own gold,” White said.

Goldman Sachs, last week lowered its average gold price forecast for 2013 to US$1,545 an ounce, although it fell well below that level in Friday’s rout. .

Bullion, after hitting all-time highs near US$1,900 an ounce in August 2011, has since trended lower, with the decline accelerating since the new year.

Also at risk, beyond the price of bullion itself, is the stock value of the miners who produce it. That was very evident on Friday when issues of some of world’s biggest gold miners were hit sharply.

Barrick Gold (TSX:ABX), for example lost more than eight per cent, down $2.06 to $22.94, as its market capitalization fell to $22.97 billion.

That allowed it to be overtaken by Goldcorp Inc. (TSX:G), with a market cap of $24.4 billion, as its stock was punished less severely by investors, down 4.57 per cent, or $1.44, to $30.07.

— With files from The Associated Press