U.S. data douses equity rally, gold down 4 percent

Sun Apr 14, 2013 4:51pm EDT
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By Herbert Lash

NEW YORK (Reuters) - Commodities sold off on Friday, with gold sinking more than 4 percent to break below $1,500 an ounce, while world equity markets fell after a dour reading of U.S. consumer sentiment and poor retail sales reinforced fears of a weak U.S. economy that would hurt global growth.

Gold fell to its lowest levels since July 2011, hurt by a draft plan for Cyprus to sell gold reserves as part of its bailout by international lenders.

Gold is now some 22 percent below the record peak of $1,920.30 an ounce set in September 2011.

Despite the sell-off in commodities, U.S. stocks trimmed some losses by the session's end to close out the second-best week of gains so far this year.

"The scale of the decline has been absolutely breathtaking," Societe Generale analyst Robin Bhar said. "We tried to rally and that just didn't get anywhere ... There hasn't been any downside support, it's like a knife through butter."

Silver led a sell-off in precious metals, falling 5.1 percent. Other commodities also fell, with Brent oil hitting an eight-month low just above $101 a barrel as the outlook for global crude demand growth dimmed. Brent later pared losses to settle above $103 a barrel.

Investors said the breadth of the sell-off appeared tied to volatility in the price of Japanese government bonds, which has forced certain holders to sell other assets to meet the risk modeling of their investment portfolios.

Both the Cypriot plan to sell gold and volatility in the Japanese bond market are most likely behind the gold plunge, said Jeffrey Sherman, a commodities portfolio manager at DoubleLine Capital LP in Los Angeles.   Continued...

Traders work on the floor at the New York Stock Exchange, April 1, 2013. REUTERS/Brendan McDermid