Equity rally pushes gold from record high

TRADING:GOLD DROPPED from record highs above $1,800 a troy ounce yesterday as short-term traders pulled out of the market amid a rally in equities.

The fall was amplified by an announcement late on Wednesday from CME Group, which owns the Comex exchange in New York, that it would raise margin requirements for gold futures trading by 22 per cent at the end of yesterday.

For traders, the move was a reminder of May’s wild swings in the silver market, when a series of margin hikes helped trigger a 25 per cent collapse in the value of the so-called “devil’s metal” in a week.

Gold dropped from a nominal record of $1,813.79 in early Asian trading to $1,763 by early afternoon in New York.

The move from $1,700 to $1,800 – in just three days – was the most rapid ascent from one milestone to the next since gold spiked from $700 to $850 in two days in 1980.

That meant the market was ripe for a short-term sell-off, strategists said. But they added that, in contrast to the precipitous plunge in the silver price in May, gold’s fundamentals appeared more solid.

The drivers of the gold price were “entirely different, and significantly more substantive, than the search for a quick buck which caused the last leg of silver’s rally at the start of the second quarter”, argued Edel Tully, precious metals strategist at UBS.

“Any pullback will be welcomed by investors who have been waiting for a better buying opportunity.”

Traders said there was little sign of a large move to buy the dip yesterday, with some long-term investors hoping for a deeper correction.

“The recovery in equities appears to be reducing safe haven flow in gold,” said James Steel, precious metals strategist at HSBC in New York.

“I sense there’s a bit of battle fatigue as well.”

Some investors have been betting that the more industrial precious metals, such as silver and platinum, will recover relative to gold, having underperformed the yellow metal since the start of August.

The gold price this week rose above the platinum price for the first time since 2008.

Nonetheless, the lack of resolution of the issues plaguing currency and debt markets meant gold’s bull run was unlikely to be over, analysts said.

Alan Ruskin, strategist at Deutsche Bank in New York, noted that gold had rallied in Swiss franc terms for the first time in weeks yesterday after a sharp correction in the franc driven by talk of intervention by the Swiss National Bank. – (Copyright The Financial Times Limited 2011)