PRECIOUS-Gold down over 2 pct as investor appetite fades

NEW YORK Thu Jan 27, 2011 5:04pm EST

Gold bars are pictured at the Ginza Tanaka store during a photo opportunity in Tokyo September 17, 2010. REUTERS/Yuriko Nakao

Gold bars are pictured at the Ginza Tanaka store during a photo opportunity in Tokyo September 17, 2010.

Credit: Reuters/Yuriko Nakao

NEW YORK (Reuters) - Gold fell more than 2 percent on Thursday, its biggest one-day drop in more than three weeks, on waning investor appetite and some anticipation of interest rate hikes, which would make zero-yield gold less appealing.

Investors have recently opted to buy investments seen as riskier such as equities and industrial commodities at the expense of bullion. The S&P 500 index .SPX traded above the 1,300 level for the first time since September 2008 on strong corporate earnings. .N

"The pending home sales looked very good, and there are concerns about inflation. Just the threat of the Fed raising the slightest amount of interest rate will have a tremendous negative effect on gold," said Miguel Perez-Santalla, vice president of Heraeus Precious Metals Management.

Positive U.S. housing and factory data and a warning about inflation by a European Central Bank official kindled speculation that some major economies would move to raise interest rates sooner than previously thought.

Spot gold fell as low as $1,310.99 an ounce, the weakest price since October 5. It was down 2.5 percent at $1,313.30 at 2:32 p.m. EST. U.S. gold futures for February delivery settled down $14.60 or 1.1 percent at $1,318.40.

Silver fell 2.8 percent to $26.83 an ounce.

Investor selling has helped pressure silver prices more than 11 percent so far this month, taking the gold: silver ratio -- the number of silver ounces needed to buy an ounce of gold -- to its highest since late November this month.

U.S. COMEX gold futures volume totaled about 370,000 lots, about two-thirds higher than its 30-day average, preliminary Reuters data showed. Turnover was in line with recent higher volume this week when prices tumbled.

Traders also cited busy contract switching from the current benchmark February contract to April ahead of the start of February delivery notices next Monday.

After a relatively steady morning, bullion abruptly dropped late in the New York session in tandem with crude oil as euro erased gains after initially setting a two-month high against the dollar.

While some question whether the metal's multi-year bull run is running out of steam, bullion has managed to resume its rally each time after a significant decline during the past 10 years. Gold is about $120 below its all time high of $1,430.95 set December 7.

Gold has lost more than 7 percent in January, which would be its first monthly decline in six months. Gold's technical picture appeared to deteriorate after breaking below key 50- and 100-day moving averages.

Dennis Gartman, publisher of the Gartman Letter, said on Thursday that spot gold's 150-day moving average at $1,307 an ounce should offer support, but he expected bullion to fall further to its long-term trendline at an area from $1,279 to $1,290 an ounce.

GOLD FUNDS SEE OUTFLOWS

Holdings of gold in the SPDR Gold Trust, the world's largest gold-backed exchange traded fund, were unchanged after recording their biggest ever one-day fall on Tuesday. The largest silver ETF the iShares Silver Trust also lost metal on Wednesday.

Friday's Commodity Futures Trading Commission Commitments of Traders report showed the net speculative long in gold futures market has contracted.

In addition, open interest in COMEX gold futures declined further on Wednesday, down about 3 percent to below 500,000 lots, following a 14 percent decline on Monday as investors liquidated long positions.

"The confluence of selling from these various categories has all the characteristics of capitulation," said Tom Pawlicki, MF Global's precious metals and energy analyst.

Platinum dropped 1.5 percent to $1,782.40 an ounce, while palladium lost 1 percent to $804.500.

(Additional reporting by Amanda Cooper and Jan Harvey in London; Editing by Alden Bentley)

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Comments (2)
stan0301 wrote:
The thing here is that there were a lot of guys who had cash–and not enough nerve to put it into stocks (where it had come from in the first place)–so they bought gold–and with a bunch of others doing the same thing gold went through the roof–now that the market (maybe) is looking better they are ditching their gold–which did ok–in favor of real stocks that can work and EARN money–probably a good idea, gold can (and did) appreciate, but it can’t earn a dime. To me one of the best measures of how real the recovery is will be watching to see just how much money comes out of gold to buy stocks–and just how low gold falls. At the level gold now is the potential percentage up side is practically non existent–do you know thousands of guys running around with tons of cash looking for a place to put it?? Most of the available money that might go to gold is already there–buying 1300 gold hoping for 2600 just isn’t going to happen.

Jan 27, 2011 8:52am EST  --  Report as abuse
Duffminster wrote:
Stan, you mentioned:

“…now that the market (maybe) is looking better they are ditching their gold–which did ok–in favor of real stocks that can work and EARN money–probably a good idea…”

Do you follow the S&P Insider Selling to Buying Ratio? If so you would be aware of the fact that it has been off the charts for months and just recently it was Div/0 and the last report showed the ratio to be over 2000.

In my opinion the major driver for the stock market remains Federal Reserve Permanant Open Market Operations and QE related churn capital from a handful of the Fed’s largest primary dealers. If you don’t know about the massive exodous from stocks by insiders during the Fed inspired rally try Googling this “Insider Selling to Buying” and this “Insider Selling To Buying Ratio: DIV/0, As No Insiders Bought Any Stock In Prior Week”.

The Federal Reserve is providing an escape hatch for the “smart money” who is selling there stocks into the manufactured rally (a very very low volume rally) and buying gold.

Our debt is the cause and will contine to be the cause of hyperinlation because it is simply Not Repayable at today’s currency valuations. So we either default directly and lost face and destroy the current power infrastructure or we devalue and default in virtual terms but maintain the existing power structure and to some degree “save face.” Its that simple.

Duffminster
http://www.duffminster

Jan 27, 2011 9:33am EST  --  Report as abuse
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