Gold tumbles as commodity bull market misses a beat

A storekeeper holds a gold bar in Singapore, May 15, 2006.
(Nicky Loh/Reuters) 

By Martin Hayes

May 15, 2006

LONDON (Reuters) - Major precious metals fell sharply on Monday, as part of a wide financial market sell-off that saw industrial metals, oil and equities all buckling under speculative selling from record highs.

"Obviously there has been talk of a much-needed correction in precious and base metals. And it is not just commodities -- forex and stocks as well," Stephen Briggs, analyst at investment bank SG CIB, said.

Gold slid as low as $678.60 an ounce, down 5.2 percent from $714.10/715.10 on Friday in New York, before edging to $682.60/683.60 late on Friday.

"This was caused by the falls on Wall Street (equities) last week. Now we've got a good old shake-out taking place, but it is just blowing the froth off it," an investment fund source said.

Silver fell as low as $13.10 an ounce, down 8.5 percent, then moved to $13.29/13.39, down from the previous New York level of $14.33/14.34.

The dollar, under pressure for some time, was stronger on Monday, and this also weighed on commodities, which are denominated in the U.S. currency.

"That, in the short-term, is bearish especially for precious metals," Briggs added.

Traders said investment funds, which have been the drivers behind a two-year commodity-wide bull market, were uniformly selling on Monday.

Price falls took place in a jittery atmosphere, where talk swirled of some trading firms having suffered heavy financial losses in recent weeks, caused by heightened volatility and increased margin calls.

"You will get this sort of thing when markets are neurotic -- and people think there is no smoke without fire," the fund source added.

However, LCH.Clearnet, which clears London Metal Exchange (LME), London Stock Exchange (LSE) and other exchange contracts, said its members have met all the margin it had called for. Read more...