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Gold Drops Amid Bullion Sales

Simon Constable

Gold traders were hit hard Friday as the continued flight to cash led market participants to liquidate their bullion holdings.

Contracts for April delivery of gold dropped $21 to close at $644.10 an ounce on the Comex division of the New York Mercantile Exchange. The PowerShares DB Gold(DGL Quote) exchange-traded fund was sharply lower also, off more than 3% recently.

The bullion holding ETFs, iShares Comex Gold Trust (IAU Quote) and streetTracks Gold Shares (GLD Quote), were both lower by 3.3%.

"Investors across the board are retreating into cash," writes Neal Ryan, director of economic research at the New Orleans-based coin dealer Blanchard, in a research brief. "Positions in every market are being closed, and money is camping out in accounts."

Because bullion has provided fair returns so far this year, it has made the decision easy to reduce gold positions, explains Ryan. Even after the bullion rout this week, which started when prices flirted with $690, the spot market remains up more than 5% since a low of about $608 in early January.

"A particularly serious development has occurred," says Clive Maund, a Chile-based technical analyst. "The long-term chart is beginning to look like a double top."

He warns that a technical break below $630 could result in an "end run" and a free fall down to $560 in short order.

In economic news, the weekly leading index grew 3.2% last week, compared with an increase of 3.4% in the prior period, according to the Economic Cycle Research Institute, which compiles the indicator. The move marks the 19th consecutive uptick for the WLI and augurs continuing robust economic activity in the months ahead.

Turning to the miners, Deutsche Bank raised its rating on Freeport-McMoRan Copper and Gold(FCX Quote) to a buy from hold and hiked its stock price target to $69 a share from $58.30. Still, the stock was dipping 2.6% at about $55.

Elsewhere, Meridian Gold(MDG Quote) and Agnico-Eagle Mines(AEM Quote) were both sliding about 5% in afternoon trading.

As for base metals, copper lost 4 cents to close at $2.71 a pound, in line with the decline in the broader metals complex.

In ferrous metals, steel prices in China were trending slightly higher due to relatively low inventory levels, according to a new report from Shanghai-based Growell Research & Consulting.