Gold posted its biggest one-day percentage drop in 30 years Monday as new signs of a global economic slowdown emerged and fears diminished that central banks' easy-money policies would stoke inflation. Gold futures for April delivery fell $140.40, or 9.4%, Monday to a two-year low at $1,360.60 an ounce on the Comex division of the New York Mercantile Exchange. That extended their bear-market descent of more than 20% from their 2011 all-time high. Since Thursday, gold prices have declined by more than $203 an ounce, a record skid since the futures began trading in the U.S. in 1974. The reversal comes as investors are grappling with signs the global economic expansion that began in 2009 is slowing.
The prices of industrial commodities ranging from copper to crude oil tumbled Monday, following news of softer-than-expected economic growth and industrial output in China. Adding to the gloom, the Federal Reserve Bank of New York issued a report showing manufacturing in the region barely expanding. The Dow Jones Industrial Average marked its worst one-day point decline since Nov. 7, 2012, dropping 265.86 points, or 1.8%, to 14599.20. Declines in commodity-linked sectors such as mining and energy led the selloff, with Freeport-McMoRan Copper & Gold Inc. dropping 8.3%.
The market selloff continued in early trading Tuesday in Asia, with Japan down 1.3%, Korea down 0.5% and Australia down 0.8%. Gold also traded lower on the Tokyo Commodity Exchange, triggering circuit breakers because of steep price drops.
After posting 12 consecutive annual price rises, gaining more than 500% over that span, gold is suddenly being shunned by investors who once saw it as a way to generate outsize returns without the volatility and uneven performance in the stock, bond and real-estate markets.
The gold rout stemmed partly from worries Cyprus and perhaps other nations may become sellers of the precious metal. Other price drags cited by traders included a sale recommendation on gold last week fromGoldman Sachs Group Inc., and a growing view that stocks are better investments, due to continuing low inflation.
"Forced selling" by investors holding gold was also among the reasons stock and commodity markets tumbled Monday, said John Brynjolfsson, who runs the $1 billion hedge fund Armored Wolf LLC. Investors. After markets closed Monday, CME Group Inc., which operates the Comex gold market, increased the sums investors must pledge in order to trade gold futures. Exchange operators often raise so-called margin requirements at times of large market swings.
Gold's capitulation has been months in the making. The price hit a recent high in October and has been in decline since. Over the past six years, central banks in the U.S. and Europe have printed extraordinary amounts of their currencies in an effort to resuscitate the world economy. Every new round of "quantitative easing," as it has been dubbed, was accompanied by loud warnings that the inevitable result of this easy money would be a surge of inflation. (online.wsj.com)
