Gold drops to 3-year low on strong US data

Written by fe Bureau | Updated: Jun 27 2013, 06:23am hrs
Gold crashed to its lowest in nearly three years in the international market on Wednesday, but a weak rupee squeezed the advantage for Indian consumers who saw the prices dropping to just a one-month low in the domestic market.

The precious metal is now down for a seventh of the last eight sessions in the global market, having lost around 10% since the start of the last week and heading for its worst quarter ever. Silver, too, hit its lowest since August 2010 intraday, tracking the fall in gold. Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, dropped 16.23 tonne to 969.50 tonne on Tuesday--the lowest since February 2009--reflecting dampening of investor sentiment.

Gold was battered in intraday trade on Wednesday after official US data revealed strong gains in orders for durable goods, the largest annual increase in house prices in seven years and soaring consumer confidence. The data raised expectations that the US Federal Reserve would start scaling back its stimulus programmes later this year, as planned, and helped the dollar to gain against a basket of currencies.

Spot gold dropped to its lowest since August 2010 at $1,223.54 an ounce before paring back some losses to trade at $1,227.86 an ounce by 1032 GMT, still down 3.8%. US August gold futures lost $47.60 at $1,227.90 an ounce, having declined to $1,223.20 earlier in the session. Gold price in Delhi lost 2.3% to Rs 26,680 per 10 grams, while silver rate tumbled by 2.4% to Rs 40,500 per kg.

"The dollar index has gone up by about 0.7% in a day, mainly due to the good economic data from the US. This precipitated golds fall by close to 4% in global markets. Though it fell in Indian markets, too, we saw the fall at a slower pace on account of the depreciation of the rupee, which breached 60 against the dollar," said Jayant Manglik, president (retail distribution) at Religare Securities.

Gold considered a hedge against inflation has got key support from easy money programmes followed by central banks in the US, Europe and Japan in recent years, which drove up the precious metal prices for twelve straight years through 2012.

"Overall $1,200 an ounce for gold looks in sight, where it can find some meaningful support," said Kishore Narne, head of commodity and currency at Motilal Oswal Commodity Broker Pvt Ltd.

Global investors this year have switched from haven asset gold to higher-yielding stocks as fears of inflation has ebbed in big economies, driving the precious metal down by more than 26% so far in 2013. Bullion demand in India--the world's biggest consumer--has also remained under pressure since mid-May, thanks to a hike in the import duty and other restrictive measures and the absence of any festival. Silver prices underperformed gold, shedding over 5% at $18.39 an ounce. Spot prices were later down 5.1% at $18.56 an ounce.