Friday, August 26, 2011

Gold Set to End Longest Winning Run in Four Years, Dropping 7% From Record

Gold headed for a weekly decline, snapping its longest winning streak in more than four years, as some investors sold the metal after equities rebounded and futures margins were raised for a second time this month.

Bullion for immediate delivery fell as much as 0.9 percent to $1,757.80 an ounce and was little changed at $1,777.20 at 11:26 a.m. inSingapore. The metal has dropped 7.1 percent from its record $1,913.50 on Aug. 23 and lost 4.1 percent this week.

“We expect the gold price will remain supported by a weaker outlook for the U.S. dollar and the economic and financial uncertainty from the euro-zone sovereign-debt turmoil,” Commonwealth Bank of Australia analysts, including Lachlan Shaw, wrote in a note today.

Before this week, gold had climbed for seven straight weeks in its longest run of weekly increases since April 2007. The metal advanced 25 percent in 2011, set for an 11th year of gains, as slumping equities, declining currencies and inflation concerns spurred investors to seek a store of value.

CME, the largest futures market, joined the Shanghai Gold Exchange in raising margins. The initial- and maintenance-margin requirement, or the minimum amount of cash that speculators must keep on deposit, was raised 27 percent per 100-ounce gold contract starting close of trading yesterday.

The December-delivery contract rose for a second day, gaining as much as 1 percent to $1,780 an ounce on the Comex. Gold futures tumbled 5.6 percent on Aug. 24, the most since March 2008, and last traded at $1,779.10.

Price Volatility

“Trading exchanges tend to hike margins due to increased volatility in the gold price,” said Shaw. “The margin hikes may have caused traders to liquidate futures positions, putting downward pressure on the gold price.”

Gold’s 30-day historical volatility, a measure of how much the metal fluctuates, climbed to about 27 yesterday, the highest level since April 2009 and up from this year’s low of about 9 on June 22, Bloomberg data showed. Futures touched $1,705.40 yesterday, dropping 11 percent from their record $1,917.90.

U.S. stocks declined yesterday, halting a three-day rally, after jobless claims unexpectedly increased and traders sold German equity futures before France, Italy and Spain extended curbs on short selling in an effort to prevent the region’s sovereign-debt crisis from worsening.

That drove the dollar to a one-week high against a basket of six currencies amid speculation that Federal Reserve Chairman Ben S. Bernanke may today disappoint investors betting he will signal a third round of asset purchases to stimulate the economy.

Cash silver shed 0.8 percent to $40.77 an ounce, palladium fell 0.3 percent to $750 an ounce, while spot platinum was little changed at $1,824.25 an ounce.

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