Gold and silver drop as demand for haven assets contracts

Price of metals for June delivery fell to lowest level in two years in Shanghai

Cash bullion of 99.99 per cent purity sank as much as 8.4 per cent to 285.60 yuan a gram on the Shanghai Gold Exchange, the  lowest since February 2011. Photograph: Bobby Yip/Reuters

Cash bullion of 99.99 per cent purity sank as much as 8.4 per cent to 285.60 yuan a gram on the Shanghai Gold Exchange, the lowest since February 2011. Photograph: Bobby Yip/Reuters

Mon, Apr 15, 2013, 10:41

Gold dropped by the daily limit in Shanghai, following a slump in international prices, on expectations that demand for haven assets will contract as the global economy improves. Silver also tumbled by the most allowed.

Gold for June delivery retreated 5 per cent from the previous settlement to 298.93 yuan a gram ($1,503 an ounce) on the Shanghai Futures Exchange, the least expensive since March 2011.

Silver for June delivery in Shanghai tumbled 6 per cent to 5,334 yuan per kilogram, the lowest for a most-active contract since trading began in May 2012.

Gold in London dropped into a bear market last week, losing at least 20 per cent from its highest close, on speculation that haven demand is declining as investors cut holdings in exchange- traded products. The metal for immediate delivery dropped to $1,425.75 an ounce today, the cheapest since April 2011.

The level of "$1,500 seemed like a solid brick wall not too long ago and now gold has crashed right through it," said Sun Yonggang, a macroeconomic strategist at Everbright Futures Co., a unit of one of China's largest state-owned investment companies.

"Sentiment towards gold is weak and it's hurt further today by a decline across all asset classes. Prices in China are catching up with the drop in New York and London prices on Friday."

Data today showed China's economic growth unexpectedly slowed in the first quarter. Gold in Shanghai last fell by the exchange-imposed limit in August 2011, after CME Group Inc. raised margins on New York futures for a second time in a month.

Cash gold

Cash bullion of 99.99 per cent purity sank as much as 8.4 per cent to 285.60 yuan a gram on the Shanghai Gold Exchange, lowest since February 2011. Volume for the benchmark cash contract jumped to 17,824 kilograms from 11,680 kilograms on April 12th, according to Bloomberg data.

The Shanghai Gold Exchange may change the margin requirements for gold contracts to 12 per cent and silver contracts to 15 per cent if they show extraordinary moves, according to a statement posted on the bourse's website.

The price limit may be adjusted to 10 per cent for gold contracts and 13 per cent for silver contracts, the statement said.

Investors should raise their risk awareness, control positions and be rational in investments, the exchange said in a separate statement.

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