Gold Plunge Worst Since 2008; Silver Dives Most Since 1987

By: Reuters

Gold plunged for a second day on Friday to settle down $101.90 at $1,639.80 in its worst sell-off since the 2008 financial crisis that signaled an end at least in the near term to the long rally in precious metals.

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Spot gold [XAU=  1657.39    -77.94  (-4.49%)   ]fell 4.7 percent to $1,652.79.

U.S. gold futures [GCCV1  1639.80    -101.90  (-5.85%)   ] shed $101.90 to settle at $1,639.80 an ounce, the lowest level since early August, and dropped the most since the 2008 financial crisis. Futures last traded at $1,642.40.

Spot silver [XAG=  31.04    -4.72  (-13.2%)   ] also fell sharply, skidding nearly 17 percent an ounce, as global recession fears made investors treat precious metals like any commodity, ignoring their safe-haven appeal that once made them a must-have in times of trouble. Silver futures [SICV1  30.101    -6.477  (-17.71%)   ] dropped $6.477 to settle at $30.101.

Silver has dropped nearly 25 percent this week. This is only the third time it has seen a drop of more than 20 percent since 1980. Copper is down almost 17 percent this week—headed for its worst week since Fall 2008.

Adding to Thursday's losses, gold is down almost 10 percent in its worst week since February 1983.

Traders said talk of hedge fund liquidation, possible sale of precious metals to cover losses in other markets and margin calls against long positions added to the downward pressure.

"We're making new lows and the bull case for gold is on pause for the near term," said Adam Klopfenstein, senior market strategist for precious metals at Lind Waldock in Chicago. "In the near-term, the flight-to-quality interest in owning gold is also out of the window as people are not interested in buying it even in the face of fears in the economy. Until it stabilizes, I'm staying out of this market."

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A stronger dollar puts pressure on gold as it makes commodities priced in the U.S. unit more expensive for holders of other currencies.

"At this point in time I don't think one can say that the safe haven rationale for gold is off. It's just that it has been going up so much that we needed a very deep correction," said MKS Finance head of trading Afshin Nabavi "We see support starting to build around the $1,670 level provided silver doesn't break below $32."

In an attempt to soothe investors, finance ministers and central bankers from the Group of 20 said they would take "all steps necessary" to calm the global financial system and said central banks were ready to provide liquidity.

Equity markets in Europe were under pressure, while U.S. stocks opened lower, as talk about an imminent Greek default gathered pace. But analysts said investors were likely to watch further developments on the global economy before piling further into gold, with the metal's recent volatility prompting some caution.

Gold hit a record of $1,920.30 earlier this month. This week it has fallen almost 6 percent and is on track for its biggest weekly drop since early March, 2009. It is still up more than 20 percent in the year to date.

"When gold is volatile like this a lot of buyers just sit on their hands and watch. They get nervous. Price volatility is destructive for investors because it erodes their confidence," said Ross Norman of Sharps Pixley. "People are looking for opportunities to buy into gold on dips. There's scope for upside here but I don't think it will race back towards $1,920 (an ounce)in a hurry."

He added: "People are looking for opportunities to buy into gold on dips. There's scope for upside here, but I don't think it will race back towards $1,920 (an ounce) in a hurry."

Silver No Safe Haven

The Shanghai Gold Exchange will lift the daily trade limit for its silver forward contract to 12 percent from 10 percent from Sept. 26, it said in a statement on Friday

Meanwhile, holdings of the largest silver-backedexchange-traded-fund (ETF)  , New York's iShares Silver Trust [SLV  29.98    -4.94  (-14.15%)   ] fell 9.8 percent on Thursday from Wednesday.

"The latest price trend show that silver is still not regarded as a safe haven, but rather as a precious metal with an industrial character," Commerzbank analysts said in a note. "We have a similar view and believe that while strong hands will soon take over the helm in the case of gold, silver could remain under pressure."

Declines in silver over the past two sessions have knocked more than 17 percent off its the price, putting the metal on course for its second straight quarterly drop after nine consecutive quarters of gains.

In other metals, platinum [XPT=  1605.28    -74.52  (-4.44%)   ] slipped about 4.2 percent to $1,607.99 an ounce, while palladium [XPD=X  631.53    -9.05  (-1.41%)  ] fell 0.9 percent to $634.72 an ounce.

Copper hits 13-month low

Copper prices continued to slide, touching their lowest levels in more than a year as worries that the global economy would stumble sent traders cashing out of the growth-sensitive industrial metal.

The most actively traded contract, copper for December delivery [HGCV1 3.28    -0.2085  (-5.98%)   ], was recently down 6.0 percent, to $3.277 a pound on the Comex division of the New York Mercantile Exchange. Futures earlier fell as low as $3.2150, the lowest level since August 2010.

Copper futures plunged by more than 7 percent Thursday, setting their lows for the year as disappointment at the Federal Reserve's  latest effort to stimulate the U.S. economy and signs of a slowdown in China and the euro-zone slammed commodities and equities markets.

Copper is particularly sensitive to the growth outlook because of its widespread use across industries, and the metal fell 17 percent in September through Thursday, as investors cut their expectations for global growth.

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