Gold price takes biggest one-day drop since 1983

Gold price takes biggest one-day drop since 1983
Paul J. Richards
CBS News

Gold had its biggest one-day drop since 1983 on Monday as a selling frenzy that began last week picked up speed.

The price of gold plunged $140.30 to $1,361.10 an ounce, a decline of 9 percent. The metal has dropped $200 an ounce, or nearly 13 percent, in the last two trading days. It's the lowest price since February 2011.

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The sell-off started Friday when the government reported a drop in inflation. Investors often buy gold when they're fearful of rising prices and sell it when they see inflation ebbing.

A proposal last week that Cyprus sell some of its gold reserves to support its banks also spooked investors, leading them to worry that Spain, Italy and other weak European countries might flood the market just as demand for the metal is weakening.

After the sharp drop last week, the rush of selling started to feed on itself Monday as worried traders hurried to get out of the market.

"This is panic, this it isn't organized at all," said Phil Streible, a senior commodities broker at RJ O'Brien Futures.

Worries about slowing growth in China also pushed down industrial metals and the price of oil and other commodities.

Gold is often thought of as a safe-haven investment, a place to park money when investors are fearful of turmoil in other markets, inflation, weak economic growth or depreciation in the value of the U.S. dollar.

It rose sharply in the past decade, from less than $330 ten years ago to a peak of $1,900 an ounce in August 2011 during the market turmoil that followed a downgrade of the U.S. government's credit rating.

Part of the rise in recent years can be attributed to more investors putting money into gold and speculating that the price will continue to rise. Some investors also bought gold as an alternative to holding dollars on the belief that the Federal Reserve's economic stimulus program would weaken the U.S. currency.

George Gero, precious metals strategist at RBC Capital Markets, said the possibility of European central banks selling gold was especially worrisome since there were fewer nations interested in keeping gold reserves these days.

"There aren't many other countries that want to buy," Gero said. "In the past you saw Mexico, Russia, China, Turkey and other central banks buying gold, but right now there seems to be more of a need for dollars."

Gold has been declining from a recent high of $1,792 on Oct. 4 as the outlook for the U.S. economy improved, diminishing the metal's appeal as a safe haven investment. Since then it's down $431, or 24 percent.

Some Federal Reserve officials have also been calling for an early end to the central bank's bond-buying program. If that happens, it would likely cause U.S. interest rates to rise, resulting in a stronger U.S. dollar. That would give traders another reason to sell gold, since they see the metal as an alternative to holding dollars.

Silver fell even more than gold, by 11 percent. Silver lost $2.97 to $23.361 an ounce, its lowest price since October 2010.

Industrial metals also fell after China reported that economic growth slowed unexpectedly in the first three months of the year. The world's second-largest economy grew by 7.7 percent over a year earlier, slowing from the previous quarter, and short of many private-sector forecasts that growth would accelerate slightly to 8 percent.

Copper, which tends to follow the outlook for global growth, dropped 7.7 cents, or 2.3 percent, to $3.27 a pound.

Palladium dropped $42.10, or 5.9 percent, to $667 an ounce and platinum dropped $71.10, or 4.8 percent, to $1,424.80.

Agricultural futures also ended lower. Wheat fell 21 cents to $6.9375 a bushel, corn fell 11.75 cents to $6.4675 a bushel and soybeans fell 18 cents to $13.95 a bushel.

Crude oil dropped to a four-month low, as the slowdown in China's growth added to doubts about the strength of the world economy and global demand for crude.

Benchmark crude fell $2.58, or 2.8 percent, to finish at $88.71 a barrel on the New York Mercantile Exchange.

In other futures trading on the Nymex—

Wholesale gasoline fell 4 cents to finish at $2.76 a gallon.
Heating oil dropped 4 cents to end at $2.83 a gallon.
Natural gas fell 9 cents to finish at $4.14 per 1,000 cubic feet.

Bryant wrote:
Gold is often thought of as a safe-haven investment, a place to park money when investors are fearful of turmoil in other markets, inflation, weak economic growth or depreciation in the value of the U.S. dollar.

Or, if you listen to the likes of Alex Jones, it's the thing to buy to hedge your bets against the inevitable collapse of the economy and/or the declaration of martial law by the UN...

Well thats true. Look, there may be a temporary selling frenzy, but im sure there will be a correction after that, because its not like the fed is printing any less money, or that real inflation hasnt been spiking over the last 6 years, or like there are signs the economy is just going to start doing awesome anytime in the foreseeable future....not with these policies.

Pun wrote:Well thats true. Look, there may be a temporary selling frenzy, but im sure there will be a correction after that, because its not like the fed is printing any less money, or that real inflation hasnt been spiking over the last 6 years, or like there are signs the economy is just going to start doing awesome anytime in the foreseeable future....not with these policies.

I know, these horrible policies that have lead to Dow and S&P setting record highs...

Like that matters to anyone but the wall street fat cats, right? And has little to with the three points i raised.

Add to that real unemployment is outrageous, with only something like 60% of the workforce actually working, the worst since carter's last year in office. Everything today cost at least twice as much as it did just 14-15 years ago, but inflation numbers (like unemployment numbers for that matter) are kept artificially low because they dont account for the cost of food or energy....umm, hello, thats what we spend a large chunk of our budget on! How many? I believe its 40million that have just dropped out of the workforce and given up? And you want to paint a rosy picture because of the stock markets? The same ones that collapsed 5 years ago and had to be bailed out? The same wall street that i thought the left and OWS were against.

Bryant wrote:

Pun wrote:Well thats true. Look, there may be a temporary selling frenzy, but im sure there will be a correction after that, because its not like the fed is printing any less money, or that real inflation hasnt been spiking over the last 6 years, or like there are signs the economy is just going to start doing awesome anytime in the foreseeable future....not with these policies.

I know, these horrible policies that have lead to Dow and S&P setting record highs...

I hope you don't believe that to be an indicator of how good the economy is right now.

Miles1 wrote:

Bryant wrote:
Gold is often thought of as a safe-haven investment, a place to park money when investors are fearful of turmoil in other markets, inflation, weak economic growth or depreciation in the value of the U.S. dollar.

Or, if you listen to the likes of Alex Jones, it's the thing to buy to hedge your bets against the inevitable collapse of the economy and/or the declaration of martial law by the UN...

Copper and silver would be better. If the collapse ever happens, copper and silver would return as the money of the common man.