GOLD Has Largest One Day Decline In Nearly 2 Years
Gold futures ended their recent winning streak in dramatic fashion Friday, ending nearly $50 lower after stronger-than-expected economic data boosted the U.S. dollar against its major rivals.
Gold, which had its largest one-day decline in 20 months, had hit a string of record highs in recent weeks as short-term speculative investors snapped up the metal and other commodities, equities and higher-yielding currencies after fleeing the U.S. dollar. They were unwinding some of this trade Friday, raising questions about how much momentum the recent rally has left.
Some market participants have expressed concern that gold could suffer a major decline if the dollar shows a sustained recovery. That hasn't been considered likely without clearer signs of economic recovery and monetary tightening by the Federal Reserve.
But data released Friday by the Labor Department--showing job losses slowed sharply in November and the unemployment rate unexpectedly declined--bolstered the idea the economy is mending faster than previously thought.
December gold futures on the Comex division of the New York Mercantile Exchange finished at $1,168.80 an ounce, down $48.60, or 3.99%, the biggest one-day percentage decline since Dec. 1, 2008. The dollar decline marked the biggest loss since March 19, 2008.
On Dec. 1, 2008, gold pulled back sharply as investors piled into cash and U.S. Treasurys on fears of a prolonged global economic slowdown sparked by weak manufacturing data and official news that the United States started a recession in December 2007. On March 19, 2008, gold futures suffered their biggest one-day dollar decline in 28 years in the aftermath of a smaller-than-expected rate cut from the Federal Reserve.
Gold for February delivery, the most actively traded contract, declined $48.80 to settle at $1,169.50 an ounce. The ICE Futures U.S dollar index was up 1.174 points, or more than 1.5%, at 75.805 points shortly after gold settled.
"A lot of it is short-term liquidation," said Carlos Sanchez, associate director of research with CPM Group.
Gold initially hesitated after the early-morning release of the payrolls data as other commodities, such as copper and oil, ticked higher, noted Andrew Montano, director of precious metals at Scotia Mocatta.
The metal then began to come off sharply as the U.S. dollar gained ground. Data showing that U.S. factory orders rose for the sixth time in seven months in October lent further support to the dollar and the idea of economic recovery.
"You may see this being the peak for the year" for gold, said Larry Young, senior trader with Infinity Futures.
With the end of the year approaching, funds and individual traders are looking to capitalize on gold's gains for the month and year.
"You're looking to book," Young said.
Even with Friday's decline, gold has gained 32% this year.
