Gold drops nearly 2%; silver, copper take hits

April 15, 2014

San Francisco (Apr 15)   Gold futures dropped nearly 2% on Tuesday, with analysts attributing the decline to profit-taking on the back of overall strength in the dollar after the prior session’s close at a three-week high for the metal.

Silver and copper, meanwhile, saw their prices take hits on concerns over China’s economic growth.

Gold for June delivery  dropped $24.30, or 1.8%, to $1,303.20 an ounce on the Comex division of the New York Mercantile Exchange, set to erase an $8.50 gain from Monday, when prices closed at a three-week high.

The fall in gold is due to profit-taking before the Easter holiday, with the decline also triggered by “buy stop losses and subsequent creation of intraday short positions,” said Chintan Karnani, chief market analyst at Insignia Consultants in New Delhi, noting that huge long positions were created on Monday as gold managed to trade over $1,320.

But gold bulls “still have hope as long as it trades over March low” of $1,277.40, he said.

A report Tuesday that Russian forces were spotted on the ground in eastern Ukraine failed to attract any safe-haven buying for gold.

“It is a case of once bitten twice shy,” said Karnani. Traders had gone long Monday on Ukraine but gold fell Tuesday, he said. “Now they are extra cautious going long. The rise (if any) will be slow and steady unlike the fall which was quite fast.”

Still, Adam Koos, president and portfolio manager of Libertas Wealth Management Group, offered some upbeat comments on gold.

“The fact that gold has found itself bouncing around in the same old range is more positive than negative,” he said. “The more time that passes, the more the metal consolidates, the stronger the commodity gets (on a relative basis), and the higher the probability of near-term growth.”

Silver, copper sink

Silver led the losses on Comex Tuesday, with copper not that far behind.

“Silver and copper got slaughtered on speculation that Chinese growth numbers are much lower than official figures,” said Karnani.

Silver for May delivery  sank 49 cents, or 2.5%, to $19.52 an ounce. High-grade copper for May delivery also fell 6 cents, or 2%, to $2.99 a pound.

Earnings Wall

Economists expect first-quarter GDP to be up about 7.3% from a year earlier, well below the fourth quarter’s 7.7% pace. Slower growth could mean more problems in debt repayment across the financial sector. Chian releases its latest growth numbers on Wednesday.

Meanwhile, despite robust credit growth, China reported on Tuesday lower-than-expected money-supply growth in March. At the end of the month, the broad M2 measure of money supply was up 12.1% from a year earlier, short of the median 13% increase forecast by economists, and February’s 13.3% rise.

In a report issued Tuesday, the World Gold Council said that following record Chinese gold demand in 2013, this year is likely to be a year of consolidation. But medium-term demand for gold bars and coins could reach close to 500 metric tons by 2017 — a rise of nearly 25% above its record level last year, the WGC said.

For now, overall strength in the U.S. dollar put pressure on dollar-denominated metals prices. The ICE dollar index /quotes/zigman/1652083/realtime DXY +0.05%  trades higher so far for the week, following an advance Monday after better-than-expected U.S. retail sales.

Gold prices on Tuesday lost more ground after news that the U.S. consumer price index rose 0.2% in March, with so-called core prices also ticking up by 0.2%.

Elsewhere in the metals spectrum, palladium for June  slid $16.35, or 2%, to $795.15 an ounce, while sister metal July platinum  shaved off $24.90, or 1.7%, to $1,442.50 an ounce.

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