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Tue 18 Sep 2012 08:47 AM

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Gold slips after commodity sell-off, off 7-month high

Oil, metals and grains market tumbled on Monday on worries about the demand outlook

Gold slips after commodity sell-off, off 7-month high

Gold edged lower in volatile trade on Tuesday after commodity markets plunged overnight and investors booked profit from a recent rally sparked by the Federal Reserve's aggressive round of stimulus efforts.

But worries that central bank money-printing will ultimately stoke inflation could prompt more buying in gold, which rallied to its highest in nearly seven months last week after the Fed launched a third round of bond buying.

Gold dropped $4.21 an ounce to $1,756.74 by 0247 GMT.

Oil, metals and grains market tumbled on Monday on worries about the demand outlook for those commodities.

"I would simply call it profit taking, if you want. But I think it's within the range of a solid performance that we've seen over the last two weeks or even a month. So nothing unusual," said Dominic Schnider, an analyst at UBS Wealth Management in Singapore.

"So from that angle, the view doesn't change. $1,950 remains the three-month target on the back of investors searching for real assets, the need for real assets. The risk for further dollar weakness is clearly here a supportive factor."

Gold hit a record of about $1,920 in 2011, when investors turned to the metal as a safe haven during the debt crisis in Europe.

A Reuters poll showed the Fed will buy a total of $600 billion of bonds under its new stimulus programme, known as QE3, and will look for a U.S. unemployment rate of 7 percent before it halts the programme.

US gold futures for December delivery fell $11 an ounce to $1,759.60 in thin trade as investors cashed in, but analysts said the uptrend for both cash and futures were intact.

"I think $1,730, levels where the market was before the Fed, will serve as a firm support with markets eyeing to test last year's peak above $1,900 before the end of the year," said Yuichi Ikemizu, branch manager for Standard Bank in Tokyo. 

In other markets, shares in Asia retreated from four-month highs on Tuesday as markets paused from last week's rallies, calculating the impact on growth from the Fed's move and eyeing whether Spain will request a bailout to ease its fiscal strains.

The dollar index measured against a basket of key currencies stayed near Friday's 6-1/2 month low of 78.601.

Silver tracked gold lower, falling from multi-month lows hit last week. Platinum dropped after the suspensions and closures of Japanese car plants in China following a territorial dispute between the two countries.

China's worst outbreak of anti-Japan sentiment in decades has led to protests and attacks on Japanese companies such as car makers Toyota Motor Corp and Honda Motor Co , forcing them to halt operations.

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