Gold drops but safe haven remains

NEW YORK (Reuters) - Gold prices dropped on Thursday, although steep equities losses spurred safe-haven demand for the metal, and palladium plummeted as much as 10 percent on investor fears that a euro zone debt crisis could hamper economic growth.

Gold bars are displayed at Habib Jewels' boutique in Kuala Lumpur in this September 17, 2009 file photo. REUTERS/Bazuki Muhammad

Palladium, which dropped for a sixth straight session, nearly suffered its biggest six-day decline since 2001, as the industrial metal sold off together with a 10 percent correction of the S&P 500 U.S. stock index and oil’s heavy losses.

Bullion has now ended lower in five of the past six sessions, after soaring to a record $1,248.95 an ounce last week on a rush of safety from European buyers. But gold’s limited losses suggested its appeal as insurance during market turmoil.

“We are in the first round of an across-the-board asset devaluation. Gold will tend to maintain its value now. It will periodically sell off as other markets drop, but you will see money coming back into gold later,” said Frank McGhee, head precious metals trader at Chicago-based Integrated Brokerage Services.

Sales of European and U.S. coins and bars surged this week, with the U.S. Mint’s American Eagle gold coins rising to its highest of the year in May, and open interest in COMEX futures held near an all-time high.

Spot gold was at $1,182.25 an ounce at 2:33 p.m. EDT, against $1,190.75 late in New York on Wednesday.

U.S. gold futures for June delivery on the COMEX division of the NYMEX settled down $4.50 at $1,188.60 an ounce.

Gold fell along with other assets, hitting a two-week low at $1,174.35 an ounce. Analysts said the market had become overextended after sharp rallies to record highs last week.

“When gold hit highs last week, we were looking for some correction. I wouldn’t be surprised if it tested $1,170,” said Walter de Wet, an analyst at Standard Bank.

“(But) Problems in the euro area should continue to provide some support, These debt problems are not going to go away overnight. Gold will continued to have this increased safe-haven status.”

Although the pace of new investment in SPDR Gold Trust has showed signs of slowing, holdings of the world’s largest gold-backed exchange traded fund still rose to a record 1,220.152 tonnes on Wednesday. <GOL/SPDR>

Strong inflows into U.S. and European ETFs, plus a recovery in sales of gold coins and bars, helped spark last week’s price rally.

On Thursday, the U.S. Mint data showed American Eagle one-ounce gold coins sales totaled 110,500 ounces so far in May, the highest in 2010, exceeding 60,500 ounces in the entire month of April.

The euro plunged against the yen but rallied versus the dollar in extremely choppy trade on mounting fears about a euro zone debt crisis.

Independent investor Dennis Gartman said he had resumed buying euro-denominated gold after abandoning his long-held strategy earlier this week, as current prices looked attractive after a precipitous drop.


For platinum group metals, platinum was at $1,518.50 an ounce, against $1,600, having earlier fallen more than 7 percent to $1,482.90 an ounce. Palladium dropped 12 percent to a low of $402.65, and was at $418.25 against $457.

Citigroup analyst David Thurtell said the metals, which are largely consumed by the auto industry as catalytic converters, were caught up in a wider sell-off on the financial markets. Fears platinum and palladium had become overextended after a sharp rise this year also pressured prices.

Platinum prices have slipped $200, or 12 percent, this week alone, while palladium shed more than $120 to its Thursday low, a 23 percent drop. Nervousness was continuing to dog the markets, with the euro, equities, oil and base metals all sliding.

Silver was at $17.75 an ounce against $18.13.

Additional reporting by Jan Harvey and Rebekah Curtis in London; Editing by Walter Bagley