August 24, 2011 / 10:36 AM / 6 years ago

PRECIOUS-Gold posts biggest drop since 1980 on Fed fears

 * Gold futures' biggest one-day price drop since 1980
 * Futures volume looks headed for a record
 * Strong U.S. durable goods orders dent safe-haven appeal
 * Coming up: Fed's Jackson Hole meeting starts Thursday  (Recasts, updates prices)
 By Frank Tang
 NEW YORK, Aug 24 (Reuters) - Gold futures fell more than $100 on Wednesday, one of the steepest falls ever, as strong U.S. economic data and expectations of more Federal Reserve stimulus accelerated profit taking from the safe-haven record high of a day ago.
 Selling spiraled out of control as money managers competed to liquidate positions in COMEX futures, which experienced their biggest single-day dollar loss since 1980. Volume looked like a record.
 The price of gold bullion is now more than $150 below Tuesday's all time high of $1,911.46 an ounce, downed by intense speculation about whether the Fed will announce new plans to ease monetary policy at a meeting late this week.
 Analysts said it was time for gold investors to take money off the table after the rally extended too far, too fast in recent weeks. Bullion rose as much as $400 since July.
 "You have a commodity that retail investors, hedge funds and everybody were long, and the technical indicators showed it was overbought. It was just a matter of time before the market starts cracking," said Mihir Dange, COMEX gold options floor trader for Arbitrage LLC.
 Spot gold XAU= was down 4.1 percent to $1,754.59 an ounce by 3:37 p.m. EDT (1937 GMT), off its session low of $1,749.39.
 Before gold began recoiing Tuesday from above $1,900, it had risen nearly 9 percent over six sessions.
 U.S. gold futures for December delivery GCZ1 settled down $104 at $1,757.30 an ounce. Reuters data showed that is the biggest price drop of the continuous, front-month contract since Jan. 22, 1980, when it tumbled almost $150. On a percentage basis, it was the steepest fall since December 2008, during the financial crisis.
 COMEX futures volume topped 430,000 lots, on pace to surpass a record from Aug. 9, preliminary Reuters data showed.
 Silver XAG= dropped 5.9 percent to $39.34 an ounce.
 Gold came under pressure after steadying overnight, after a report showing new orders for U.S. durable goods orders rose 4 percent in July, more than expected and offering hope the ailing economy could dodge a second recession. [ID:nN1E77N096]
 Analysts warned of a sharp correction from this month's rally was possible, especially if Friday's central bank meeting at Jackson Hole, Wyoming does not result in a Fed announcement of a third round of government bond buying, or quantitative easing, also known as QE3.
 "The correction really should be taking place now, because of all the (bets) on the table," said Ashok Shah, chief investment officer at London & Capital.
 "But the journey is not complete until Jackson Hole is done," Shah said. The Fed conference starts on Thursday.
 On the options front, the spread between the 25-day implied volatility of COMEX gold and that of put options has narrowed since Monday, a sign that gold option investors were turning bearish.
 Gold put-call spread narrows:
 CBOE gold volatility index:
 Asset returns in 2011:
 Inflation adjusted gold:
 The CBOE gold volatility index .GVX is near at its highest since April 2009.
 The CME Group (CME.O) said late Wednesday it would raise maintenance margins for trading COMEX 100-ounce gold futures by 27 percent, after the close of business on Aug 25. The Shanghai Gold Exchange and Hong Kong Mercantile Exchange had raised margins on some of gold contracts this month. [ID:nL4E7JN040] [ID:nL4E7JN040]
 Holdings of the SPDR Gold Trust (GLD), the world's largest gold-backed exchange-traded fund, fell by nearly 25 tonnes on Tuesday, their biggest one-day outflow since Jan. 25. [GOL/ETF]
 Spot platinum XPT= dropped 2.8 percent to $1,805.49 an ounce, and palladium XPD= was down 1.5 percent at $745.28 an ounce. 3:37 PM EDT     LAST/    NET   PCT      LOW    HIGH  CURRENT
            SETTLE   CHNG  CHNG                       VOL US Gold DEC   1757.30-104.00  -5.6  1751.60 1856.80  393,835 US Silver SEP  39.162 -3.129  -7.4   39.090  42.485   95,609 US Plat OCT   1826.30 -53.80  -2.9  1805.20 1884.70    7,845 US Pall SEP    743.15 -21.25  -2.8   742.00  765.25    3,692 Gold          1754.59 -75.06  -4.1  1750.55 1853.61        Silver         39.340 -2.480  -5.9   39.130  42.400 Platinum      1805.49 -51.31  -2.8  1809.75 1879.00 Palladium      745.28 -11.67  -1.5   744.60  762.00 TOTAL MARKET              VOLUME  30-D ATM VOLATILITY
            CURRENT   250D AVG   CURRENT     CHG US Gold        430,985   177,127     18.49    0.37 US Silver      143,445    61,613     40.35    0.41 US Platinum      8,312     7,300        22    2.00 US Palladium     5,684     3,973                  (Editing by Alden Bentley)       

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