Gold falls most since July on commodities rout

NEW YORK (Reuters) - Gold suffered its biggest fall in four months on Friday, tumbling 3 percent as Chinese rate-hike talk, eurozone debt worries and weaker Treasuries prices triggered widespread unwinding of risk in commodities.

After holding firm this week in the face of the dollar’s best gains in three months, gold buckled mid-morning as the euro cut gains in tandem with falling U.S. Treasuries prices, when the first day of heavy purchasing by the Federal Reserve failed to jump-start wider demand for debt. <US/> <FRX/>

Spot silver tumbled almost 7 percent, its biggest one-day loss since February and second major slide this week, as investors liquidated more positions in heavy trade after the exchange raised margins by 30 percent earlier this week.

In a week marked by disrupted correlations and extreme volatility, dealers said precious metals were caught up in near indiscriminate selling across the commodity spectrum rather than suffering from any bullion-specific bearishness.

Spot gold slid 3.3 percent to $1,362.66 an ounce at 2:09 p.m. EDT (1909 GMT), having earlier hit a one-week low at $1,359.70 an ounce. It was the biggest one-day fall since July 1.

U.S. gold futures for December delivery settled down $37.80 an ounce at $1,365.50.

The Reuters/Jefferies CRB .CRB index dropped almost 4 percent, its biggest daily loss in a year and a half, after a sell-off triggered early by fears of a Chinese interest rate rise snowballed through the rest of the session. Copper and oil fell 3 percent, wheat dropped 5 percent and sugar 12 percent. <COM/WRAP>

“We have a liquidation pattern across the board in every commodity market here,” said Adam Klopfenstein, senior market strategist with MF Global’s unit Lind-Waldock.

“Gold and other commodities are going to suffer in the short run as a result of the change in the opinion in the marketplace that China might not be able to grow as fast if it is going ... to rein in ... inflation or to curb fast money that has been spurring the economy,” Klopfenstein said.

A 999.9 fine gold 100 troy ounce Engelhard gold bar is seen on the floor of the New York Stock Exchange in New York, November 9, 2010. REUTERS/Shannon Stapleton

China stocks fell more than 5 percent on Friday for their biggest percentage loss in over a year, sparking a global commodities sell-off on speculation the central bank will raise interest rates to tackle inflation.

China this week raised bank reserve requirements, boosted yields on new government bills, and introduced new rules to curb money inflows. Those moves came ahead of Thursday data showing Chinese inflation at a 25-month peak, and spurring speculation that an interest rate hike will follow soon.

Other commodities extended losses at midday after the Fed bought $7.23 billion in Treasury paper on Friday under its $600 billion bond-buying program announced last week to stimulate the economy. Treasuries prices hit session lows after the Fed completed its purchases, with both seven-year notes and 10-year notes trading a full point lower in price.

“People are worried now about China tightening. China has been driving a lot of commodities and so fears of further interest rate rises in China ... will have an impact on buying,” said David Thurtell, a London-based analyst for Citigroup.

The euro rose from a six-week low against the dollar after European leaders sought to reassure nervous bondholders about the value of their holdings, and as Ireland said it has not formally applied for emergency funding from the European Union.

While the inverse link between gold and the dollar weakened significantly this week as investors focused on European risk, it resurfaced part-way through Friday's trade when the euro pared gains as roiling financial markets outweighed a move by European leaders to reassure nervous bondholders. (Graphic:


Analysts said that gold should be supported by underlying safe-haven buying after the G20 meeting highlighted deep divides on currencies and trade imbalances among member countries.

G20 leaders closed ranks on Friday and agreed to a watered-down commitment to watch out for dangerous imbalances, yet offered investors little proof the world was any safer from economic catastrophe.

Interest in investment vehicles such as exchange-traded funds was soft, with holdings of the world’s largest gold-backed ETF, New York’s SPDR Gold Trust, falling by just under 1 tonne on Thursday. <GOL/SPDR>

Among other precious metals, spot silver dropped 6.5 percent to $25.94 an ounce, while platinum fell 4.5 percent to $1,673.24 an ounce and palladium slipped 5.2 percent to $672.72.

Additional reporting by Jan Harvey and Marie-Louise Gumuchian in London; Editing by Lisa Shumaker