The long-awaited selloff in gold and gold-mining stocks finally arrived Thursday, as prices for the precious metal tumbled in the biggest one-day fall since the Persian Gulf crisis in 1990.
Gold closed at $377.20 an ounce on the New York Commodity Exchange Thursday, down $22, or 6%, from Wednesday.
Although many analysts had expected gold prices to ease after hitting a 3 1/2-year high earlier in the week, the size of the drop caught some by surprise and left small and large investors alike wondering where prices are headed now.
"I was expecting some adjustment, but this was a little more than I expected for a single day," said Victor Flores, who manages two gold mutual funds for United Services Advisors in San Antonio, Tex.
Silver dropped 47.9 cents to $4.773 an ounce. Contracts for the October delivery of platinum on the New York Mercantile Exchange dropped the permitted daily limit of $25, to $394.60.
Gold stocks, which have been market leaders recently, also tumbled. American Barrick sank 2 3/8 to 24 1/4, Homestake Mining slumped 1 3/8 to 18 7/8, and ASA Ltd. dropped 2 3/8 to 44 3/8.
Gold prices started the year at about $325 an ounce, but began moving higher in March amid signs that inflation was heating up and worldwide demand for the metal was growing. Prices rose farther as the currency crisis in Europe worsened and big investment companies and speculators bid up the prices of bullion, futures contracts and gold-mining stocks.
The metal hit a high of $414 earlier this week. But prices came under pressure on Wednesday, after many large Australian and South African companies began selling some of their holdings to cash in their profits.
On Thursday, a report released by the World Gold Council said three of the world's biggest gold importers--Taiwan, Hong Kong and Singapore--bought only 161 metric tons of the metal in the second quarter, compared to 306 tons in the first three months of the year. That prompted many jittery investors to sell their bullion and stocks and sent prices into a tailspin.
"It was simply a market that was overbought and overextended," said Daniel Weissman, a vice president at MTB Banking Corp. in New York. "It was a healthy correction and I'm glad it happened."
Weissman and many other analysts said gold should stay in the $380-range over the next few days and then start moving higher again.
"Inflationary pressures are still building in the U.S. and the European currency is a shambles," said James Dines, a well-known gold bug and publisher of a Belvedere, California-based investment newsletter since 1960. "The fundamentals for a rising (gold) market are still there, and they're not going to go away overnight."
Although metals trading on the floor of the New York exchanges was more hectic than usual, retailers who sell coins and precious metals to small investors said their was no panic selling by the public.
"It's been an unusually quiet day in here," said Ken Edwards of California Numismatic Investments in Inglewood, one of the area's largest dealers.
"A lot of people who have bought gold over the past several months have made a lot of money, and I think they're going to wait and see what happens over the next few days before they decide to buy or sell some more."
The Golden Slide
Gold prices plunged Thursday as investment-fund managers jettisoned their positions, sensing an overblown bull market.
Price per ounce, nearby contract, New York Commodity Exchange
Thursday: $377.20, down $22.00
Source: DRI/McGraw Hill