(Bloomberg News) Gold tumbled more than $100 and was set for its worst two-day slump since 1983 as equities and other commodities fell on speculation European governments will struggle to contain the region's debt crisis, threatening global growth. Silver headed for its worst two-day drop in 31 years.
Cash gold fell as much as $124.08, or 7.5 percent, to $1,532.72 an ounce, the lowest price since July 8. The metal traded at $1,558.55 at 3:12 p.m. in Singapore, down 13.3 percent since Sept. 20. Spot silver lost as much as 16.3 percent to $26.07 an ounce, the lowest since November, and traded at $28.30.
"It all depends on the stability of the financial situation in Europe and how that gets managed, but it's difficult times at the moment for gold," Alexandra Knight, an economist at National Australia Bank, said by phone from Melbourne. "It's possible people are selling gold to cover losses in other markets. We could see it come back as it's still a favored asset."
The 18-month European debt crisis that has Greece on the brink of default threatens to tip both the region and the global economy back into recession even as Group of 20 finance chiefs pledged "a strong and coordinated international response to address the renewed challenges facing the global economy" at International Monetary Fund and World Bank weekend meetings.
Senior European finance officials will examine the cost advantages of setting up a rescue fund, known as the European Stability Mechanism, a year earlier than its planned July 2013 start, according to a document obtained by Bloomberg News. Estonia's central bank Deputy Governor Ulo Kaasik said the European Central Bank may take further steps to support the region's economy, including cutting interest rates.
Bullion for December-delivery fell as much as 6.4 percent to $1,535 an ounce in New York, extending the 9.3 percent drop in the previous two days. Margin increases may help steady prices, said James Steel, an analyst at HSBC Securities USA Inc.
CME Group Inc. increased the margin requirements on gold and silver trading after prices plunged. The minimum cash deposit for gold futures will rise 21 percent to $11,475 per 100-ounce contract at the close of trading today, while the minimum cash deposit for silver was raised to 15.6 percent to $24,975, CME said in a Sept. 23 statement.
December-delivery silver shed as much as 13.1 percent to $26.15 an ounce after reversing an advance of 2.9 percent, and traded at $28.365.
Asian stocks, oil and copper declined after U.S. Treasury Secretary Timothy F. Geithner called on European policy makers to intensify their efforts to end the region's debt crisis. Failure to act threatened "cascading default, bank runs and catastrophic risk," Geithner warned during the IMF meeting.
Hedge funds and other large speculators trimmed their net- long gold positions by 11 percent to 150,529 contracts in the week to Sept. 20, data from the U.S. Commodity Futures Trading Commission showed. Gold held by exchange-traded products fell for a second day to 2,235.628 metric tons on Sept. 23, after reaching a record 2,298.383 tons on Aug. 8, Bloomberg data show.
"The steep declines in net-long speculative positions in all the precious metals may mean that short-term longs are being cleaned out of the market," said HSBC's Steel. "This could leave bullion well-placed to trade higher when the current selling cycle winds down."
The ratio of gold to silver climbed to the highest level since last September, while the ratio of platinum to gold slumped to the lowest level since at least 1992, a sign that investors may be concerned the sovereign-debt risk in Europe is escalating, potentially trimming demand for industrial metals. One ounce of gold bought as many as 60.4335 ounces of silver today and one ounce of platinum bought as little as 0.9463 ounce of gold, according to Bloomberg data.
Morgan Stanley attributed silver's drop to growing concerns about industrial usage and the "high retail component of the investor base," analysts led by Hussein Allidina said in a report. "The reversal in gold provides an attractive entry point for our preferred metal."
Spot platinum fell for a fourth day to trade below $1,500 for the first time since August 2010, dropping as much as 8.7 percent to $1,471.25 an ounce. Palladium also declined for a fourth day, shedding as much as 4.7 percent to $605.25 an ounce, the lowest price since October.