Gold drops to end worst month since 1983
NEW YORK, LONDON: Gold prices dropped 2 percent on Friday, concluding their
worst month in a quarter century as a strong dollar and recession fears drove
investors into less volatile assets.
Gold bullion lost 17 percent in October, its biggest decline since February,
1983, when it finished the month 18.2 percent lower.
Bullion is down 12 percent this year, well below the record high of $1,030.80
an ounce struck in March.
"Gold's moves today are mainly currency driven," said Simon Weeks, director of
precious metals at the Bank of Nova Scotia.
"At the month-end, flows are in favor of the dollar."
Gold was at $720.35 an ounce at 2:04 p.m. EDT (1804 GMT), 2.1 percent lower
than Thursday's close of $735.50.
The US dollar and yen posted sharp gains after bleak US economic reports
heightened global recession fears.
Gold tends to move opposite to the dollar, whose strength makes bullion more
expensive for holders of other currencies.
A sharp drop of the COMEX futures open interest this week signaled more
unwinding of long positions as extreme price volatility has dented buying
sentiment.
"Another big-position account probably stepped to the sidelines," said FC Stone
broker George Nickas, referring to the tumbling open interest, a measure of
market liquidity
DOLLAR THE DRIVER
"The key driver for gold at the moment is the US dollar and it looks like it is
going to strengthen again and that is definitely negative for gold," a
London-based trader said.
US data on Friday showed consumers in September cut spending for the first time
in two years, evidently bracing for hard times.
"In times of recession, the most likely scenario for gold is it goes down a
lot, especially if it is trading at historically high levels," said Jesper
Dannesboe, senior commodity strategist at Societe Generale.
"Because the fears of inflation will be replaced by fears of disinflation and
that is a killer for gold ... I think gold is going below $600 in this cycle."
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