Gold futures drop by nearly $40 an ounce

Broad-based selloff finds silver making biggest percentage pullback

 SAN FRANCISCO (MarketWatch) — Gold futures dropped by nearly $40 an ounce Tuesday, as a growth slowdown in China’s economy during the third quarter pushed the metal below some key technical levels, triggering additional selling.

“It looks like liquidation by frustrated longs following gold’s inability to push higher and back into the $1,700s as might have been expected bearing in mind the deep ongoing concerns with the economy,” said Ross Norman, chief executive at London-based bullion brokers Sharps Pixley. 

Gold for December delivery GC1Z -2.27%  declined $36.20, or 2.2%, to stand lately at $1,640.40 an ounce on the Comex division of the New York Mercantile Exchange. The contract, which had traded earlier as low as $1,628.20, fell $6.40 on Monday.

“It’s a technical trade,” said Charles Nedoss, senior market strategist at Olympus Futures. The market “breached a slew of major moving averages” — namely, the 10-day average at $1,660.50, the 100-day average at $1,658.10 and the 20-day average at $1,658.10. 

Nedoss said he does not see “hard support” until the $1,600 level. 

Recent strength in the U.S. dollar also likely added pressure to gold prices. 

The dollar index DXY +0.26% , which measures the greenback against a basket of six other currencies, rose to 77.472 from 77.162 late Monday. 

A stronger dollar is usually negative for gold and other commodities as it renders them more expensive to holders of other currencies, weakening their investment appeal. 

For now, “although physical demand [for gold] is solid, this is has not been joined by significant increases in safe-haven flows into the [exchange-traded funds],” said Norman, in emailed comments. “This is puzzling and it would appear that gold is presently failing to reflect the high degree of risk currently in the market.” 

Still, China’s third-quarter economic performance “was a hindrance and slowdown in growth somewhat uninflationary,” said George Gero, precious metals strategist at RBC Capital Markets, in emailed comments. 

China’s gross domestic product grew in the third quarter at a slightly weaker pace than had been expected, data showed earlier Tuesday. GDP for the three months rose 9.1% from a year earlier, easing from the second quarter’s comparable 9.5% growth pace, the National Bureau of Statistics reported. Read more about China’s GDP. 

 

Against this backdrop, other metals saw sharp declines, with silver posting the largest drop. 

December silver SI1Z -2.36%  shed 69 cents, or 2.2%, to $31.14 an ounce, while December copper HG1Z -1.58%  lost 6 cents, or 1.7%, to $3.32 a pound. 

December palladium PA1Z -1.14%  declined $7.90, or 1.3%, to $608.90 an ounce. January platinum PL2F -1.37%  traded down $20.40, or 1.3%, at $1,531.40 an ounce.

Source; http://www.marketwatch.com/story/gold-futures-drop-by-more-than-40-an-ounce-2011-10-18