Forexpros – Gold futures suffered their biggest one-day drop in five years on Friday, plunging to a seven-week low as steep declines in global equity markets prompted investors to sell the precious metal to raise cash and cover losses elsewhere.
On the Comex division of the New York Mercantile Exchange, gold futures for October delivery settled at USD1,656.95 a troy ounce by close of trade on Friday, tumbling 8.9% over the week, the third consecutive weekly decline.
The October contract fell by as much as 6.1% on Friday to hit USD1,629.95 a troy ounce, the lowest price since August 2.
U.S. and European equity markets tumbled last week, with the Dow Jones Industrial Average plunging 6.4%, its worst weekly loss since the week ended October 10, 2008, near the peak of the recent global financial crisis.
Gold prices came under pressure amid widespread talk of possible selling by big hedge funds covering losses in other markets, while speculation that European lenders were selling gold in order to raise cash also weighed.
Global financial service provider Barclays said in a report on Friday that, “Gold has become the source of liquidity for global margin calls,” while adding that it views the latest correction in gold as “temporary and similar to initial losses suffered in 2008”.
In October 2008, gold prices tumbled 18% as turmoil in global financial markets led to losses in global equity and commodity markets. The precious metal rallied 23% in the next two months.
The losses in global financial markets came amid growing fears over the global economic outlook after the Federal Reserve warned of “significant downside risks” facing the U.S. economy on Wednesday and announced fresh measures to boost growth.
The Fed unveiled a plan to trade short-term bonds for long-term ones, in an attempt to boost the economy by pushing down long-term interest rates, a move dubbed “Operation Twist.”
On Friday, financial leaders from the Group of 20 nations said they would take “all steps necessary” to calm the global financial system and said central banks were ready to provide liquidity, after holding talks in Washington.
Elsewhere on the Comex, silver for December delivery settled at a seven-month low of USD31.18 a troy ounce by close of trade on Friday, plunging 23.5% on the week, while copper for December delivery settled at a 25-month low of USD3.317 a pound, tumbling 15% on the week.
In the week ahead, developments in Greece look likely to remain in focus while investors will be closely watching U.S. data on second quarter economic growth in order to gauge the strength of the U.S. economic recovery.
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