Gold plunges after Fed rate cut
March 20, 2008
NEW YORK (AP) - Gold futures had their worst day in nearly two years
Wednesday, beaten down after a smaller-than-expected interest rate cut bolstered
the dollar and diminished the metal's appeal as a hedge against inflation.
Other commodities also traded lower, with crude oil, silver, copper and
agriculture futures all falling sharply as part of a broad commodities sell-off.
The Federal Reserve on Tuesday lowered interest rates for the sixth time
since September, moving aggressively to counter growing turmoil in financial
markets that led to the near-collapse of investment bank Bear Stearns Cos. The
Fed cut its benchmark federal funds rate by three-fourths of a percentage point,
helping to propel the Dow Jones industrials up 420 points Tuesday.
But the Fed's move fell short of the full one-point cut many investors had
hoped for, propping up the battered dollar Wednesday and sparking a huge
sell-off of hard assets from heating oil to platinum and soybeans.
"Things turned really ugly, really fast in the commodities complex today,"
Jon Nadler, analyst with Kitco Bullion Dealers in Montreal, said in a note.
"Once the dollar started eaking out small gains this morning and crude oil
started losing serious ground, the sell-off in precious metals gathered steam
and left a wide swath of damage in its wake."
Gold for April delivery plunged $59 to settle at $945.30 Wednesday on the
New York Mercantile Exchange. The 5.9 percent decline was the largest one-day
loss since June 2006. Gold soared to an all-time high of $1,033.90 Monday,
following the Fed-approved bailout of Bear Stearns by JPMorgan Chase & Co.
"It's certainly a correction," said James Steel, precious metals analyst
with HSBC in New York. "The rate cut was less than expected and there seems to
be some relaxation in credit risk concerns today, so that's hurting gold."
Prior to the rate cut, gold had gained almost 20 percent this year, driven
by U.S. recession fears, record high crude oil prices and a tumbling dollar.
Some gold watchers in recent days even began whispering about $2,000 gold, a
level approaching the metal's inflation-adjusted high of 1980. But it's too
early to tell whether the metal's decline signals a protracted correction or
not, analysts say.
"We'll have to see where it bottoms out, but you can't by any means believe
the whole credit market issue has been resolved, and a resurfacing of worries
there would buoy gold," Steel said.
Other precious metals also traded sharply lower Wednesday. Silver for May
delivery lost $1.525 to settle at $18.445 an ounce on the Nymex, while May
copper dropped 11.30 cents to settle at $3.6335 a pound.
In energy markets, oil prices fell sharply Wednesday after the U.S.
government released data suggesting demand for petroleum products may be falling
amid high oil and gasoline prices.
Light, sweet crude for April delivery fell $4.94 to settle at $104.48 a
barrel on the Nymex. It was the largest one-day price drop for a front-month oil
contract since 1991. The April contract expired at the end of Wednesday's
session, and trading was much heavier in May oil futures, which fell $5.96 to
settle at $102.54 a barrel on the Nymex.
Other energy futures also fell. April gasoline futures fell 9.97 cents to
settle at $2.5603 a gallon on the Nymex, and April heating oil futures fell
12.12 cents to settle at $3.0167 a gallon.
The drop in metals and energy futures quickly spread to agriculture
products, which fell sharply after the dollar's rise against the euro. Wheat,
corn and soybean futures all fell the daily price limit in Chicago.
Wheat for May delivery lost 90 cents to settle at $10.74 a bushel on the
Chicago Board of Trade, while May corn fell 20 cents to settle at $5.2725 a
bushel. May soybeans declined 50 cents to settle at $12.57 a bushel.
Wednesday, beaten down after a smaller-than-expected interest rate cut bolstered
the dollar and diminished the metal's appeal as a hedge against inflation.
Other commodities also traded lower, with crude oil, silver, copper and
agriculture futures all falling sharply as part of a broad commodities sell-off.
The Federal Reserve on Tuesday lowered interest rates for the sixth time
since September, moving aggressively to counter growing turmoil in financial
markets that led to the near-collapse of investment bank Bear Stearns Cos. The
Fed cut its benchmark federal funds rate by three-fourths of a percentage point,
helping to propel the Dow Jones industrials up 420 points Tuesday.
But the Fed's move fell short of the full one-point cut many investors had
hoped for, propping up the battered dollar Wednesday and sparking a huge
sell-off of hard assets from heating oil to platinum and soybeans.
"Things turned really ugly, really fast in the commodities complex today,"
Jon Nadler, analyst with Kitco Bullion Dealers in Montreal, said in a note.
"Once the dollar started eaking out small gains this morning and crude oil
started losing serious ground, the sell-off in precious metals gathered steam
and left a wide swath of damage in its wake."
Gold for April delivery plunged $59 to settle at $945.30 Wednesday on the
New York Mercantile Exchange. The 5.9 percent decline was the largest one-day
loss since June 2006. Gold soared to an all-time high of $1,033.90 Monday,
following the Fed-approved bailout of Bear Stearns by JPMorgan Chase & Co.
"It's certainly a correction," said James Steel, precious metals analyst
with HSBC in New York. "The rate cut was less than expected and there seems to
be some relaxation in credit risk concerns today, so that's hurting gold."
Prior to the rate cut, gold had gained almost 20 percent this year, driven
by U.S. recession fears, record high crude oil prices and a tumbling dollar.
Some gold watchers in recent days even began whispering about $2,000 gold, a
level approaching the metal's inflation-adjusted high of 1980. But it's too
early to tell whether the metal's decline signals a protracted correction or
not, analysts say.
"We'll have to see where it bottoms out, but you can't by any means believe
the whole credit market issue has been resolved, and a resurfacing of worries
there would buoy gold," Steel said.
Other precious metals also traded sharply lower Wednesday. Silver for May
delivery lost $1.525 to settle at $18.445 an ounce on the Nymex, while May
copper dropped 11.30 cents to settle at $3.6335 a pound.
In energy markets, oil prices fell sharply Wednesday after the U.S.
government released data suggesting demand for petroleum products may be falling
amid high oil and gasoline prices.
Light, sweet crude for April delivery fell $4.94 to settle at $104.48 a
barrel on the Nymex. It was the largest one-day price drop for a front-month oil
contract since 1991. The April contract expired at the end of Wednesday's
session, and trading was much heavier in May oil futures, which fell $5.96 to
settle at $102.54 a barrel on the Nymex.
Other energy futures also fell. April gasoline futures fell 9.97 cents to
settle at $2.5603 a gallon on the Nymex, and April heating oil futures fell
12.12 cents to settle at $3.0167 a gallon.
The drop in metals and energy futures quickly spread to agriculture
products, which fell sharply after the dollar's rise against the euro. Wheat,
corn and soybean futures all fell the daily price limit in Chicago.
Wheat for May delivery lost 90 cents to settle at $10.74 a bushel on the
Chicago Board of Trade, while May corn fell 20 cents to settle at $5.2725 a
bushel. May soybeans declined 50 cents to settle at $12.57 a bushel.
Labels: Markets
