Gold Plunges Most in 33 Years in Record-High Trading

By Glenys Sim, Phoebe Sedgman & Debarati Roy 

Is Gold Headed Below $1,300? History Says So

Gold plunged the most in 33 years amid record-high trading as an unexpected slowdown in China’s economic expansion sparked a commodity selloff from investors concerned that more cash will be needed to cover positions.

China’s economy in the first quarter grew less than forecast by economists, government data showed today. The minimum amount of cash for borrowing from brokers to trade gold futures on the Comex may increase after prices plummeted 13 percent, or more than $200 an ounce, in two sessions. Silver, platinum and palladium slumped, and a gauge of 24 commodities fell to the lowest since July.
On April 12, gold slumped into a bear market on concern that Cyprus may sell bullion holdings to cover a bailout, and the Federal Reserve signaled that that U.S. monetary stimulus may be scaled back this year. Holdings in the SPDR Gold Trust (GLD), the biggest exchange-traded product backed by the metal, have tumbled to the lowest in almost three years, and hedge funds have cut bets on higher prices by 72 percent since mid-October.
“Gold took a beating today because of margin calls” expected on the Comex, Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago, said in a telephone interview. “The Chinese number was the final nail on the head with people exiting from all commodities, including gold.”
Gold futures for June delivery slumped 9.3 percent to close at $1,361.10 at 1:51 p.m. on the Comex in New York, the biggest drop for a most-active contract since March 17, 1980. After the settlement, the price touched $1,348.50, the lowest since Feb. 7, 2011. Estimated trading on all contracts was 684,502 contracts at 4:10 p.m., topping the previous record of 486,315 contracts on Nov 28.

Silver Slump

This year, silver has tumbled 23 percent, and gold has slumped 19 percent, the most among the 24 raw materials in the Standard & Poor’s GSCI Spot Index.
Following a 12-year rally, the turn in the gold cycle is quickening and investors should sell, Goldman Sachs Group Inc. said April 10. U.S. equities climbed to a record last week, and some Fed policy makers favor pulling back this year on $85 billion in monthly debt purchases.
Gold slid 4.1 percent on April 12, taking losses to more than 20 percent since the record close in August 2011 and meeting the common definition of a bear market.

China GDP

China’s gross domestic product rose 7.7 percent in the first quarter from a year earlier, the National Bureau of Statistics said today. That compares with the 8 percent median forecast in a Bloomberg News survey of 41 analysts and 7.9 percent in the fourth quarter. India is the biggest gold buyer.
“We could see a severe correction in gold, even spilling over into silver and the platinum metals group,” Peter Sorrentino, who helps manage about $14.7 billion of assets at Huntington Asset Advisors in Cincinnati, said in an e-mail. “I reduced our holding some weeks back, and regret now not selling more.”
Prices may drop to $1,310 by June, Sterling Smith, a Chicago-based commodity futures specialist at Citigroup Global Markets Inc., said today in a telephone interview.
An April 9 debt assessment by the European Commission said Cyprus had committed to selling about 400 million euros ($525 million) of “excess” gold reserves. In response to the disclosure, the Central Bank of Cyprus said it wasn’t considering a sale. It owns 13.9 metric tons, according to the World Gold Council. That’s valued at about $622 million.

‘Suffering Fatigue’

“Some of the key pillars of the gold bull market look like they’re suffering fatigue,” Peter Richardson, an analyst at Morgan Stanley, said by telephone from Melbourne. “The gold market’s probably started to price in the prospect that beleaguered members of the euro zone might be forced to sell gold to raise part of the funding, and there are much bigger holders in that category than Cyprus.”
Gold has ceased to be a haven after the price fell when the euro was close to collapse last year, billionaire investor George Soros said in an interview with the South China Morning Post published April 8. Soros cut his stake in the SPDR gold fund by 55 percent in the fourth quarter, a government filing showed.
The Fed has said further improvement in the labor market is needed to consider reducing its stimulus. While growth will probably slow to 1.6 percent this quarter from 2.9 percent in the first quarter, expansion will accelerate every three-month period through mid-2014, economists surveyed by Bloomberg have forecast.
Silver futures for May delivery plunged 11 percent to $23.361 an ounce on the Comex, the biggest drop since Sept. 23, 2011. After the settlement, the price touched to $22.73, the lowest since Oct. 8, 2010.
On the New York Mercantile Exchange, platinum futures for July delivery retreated 4.8 percent to $1,424.80 an ounce. After the settlement, the price touched $1,402.40, the lowest since Aug. 16.
Palladium futures for June delivery slumped 5.9 percent to $667 an ounce, the biggest drop since Dec. 14, 2011. After the settlement, the price touched $652.95, the lowest since Nov. 28.
To contact the reporters on this story: Glenys Sim in Singapore at gsim4@bloomberg.net; Phoebe Sedgman in Melbourne at psedgman2@bloomberg.net; Debarati Roy in New York at droy5@bloomberg.net