By Polya Lesova & Myra P. Saefong, MarketWatch
FRANKFURT (MarketWatch) -- Gold futures fell on Friday but traded off their lows, as Dubai World's debt woes fueled a sell-off in commodities and stocks, while the U.S. dollar gained against its rivals.
Gold for December delivery tumbled from a high of $1,195 an ounce to an intraday low of $1,130.10 an ounce in electronic trading on Globex. That is a decline of nearly $65, or more than 5%.
In recent trading, gold fell $26.80, or 2.3%, to $1,160.20 an ounce.
"Dubai credit worries have weighed on commodities and equities over the past 24 hours, sparking long liquidation as investors wind in their risk exposure," said James Moore, analyst at TheBullionDesk.com, in a note to clients.
"The key question now is whether this is a correction within an overall bull trend, or could a default on Dubai credit commitments derail market confidence again, sending investors rushing for the exit door in order to secure sufficient cash liquidity?" Moore said.
U.S. stock-market futures traded sharply lower in the wake of a sell-off overnight in Asia as nervous markets worried about banks' exposure to Dubai World's debt.
Dubai World, the city-state's largest corporate entity, has asked creditors for a six-month stay on debt repayments of $59 billion.
The dollar rose against its rivals as investors sold currencies perceived as risky.
The dollar index (DXY 75.29, +0.46, +0.61%) , which tracks the performance of the greenback against a basket of currencies, rose 0.7% to 75.350.
Other metals futures posted steep losses. Silver futures fell 4% to $18 an ounce and copper futures dropped 4% to $3.04 a pound.
Oil futures broke below $73 a barrel on Friday, dropping more than 5% in recent trading. See full story on oil's fall.
Gold and the dollar have traditionally had a strong inverse relationship. When the dollar rises, gold prices tend to fall.
"The Dubai news is the first major negative news in the past two to three months for investors," said Chintan Karnani, an analyst at Insignia Consultants in New Delhi. "This has resulted in an excuse for profit-taking."
Gold has historically been seen as a safe-haven asset that investors flock to during times of financial and economic turmoil, as is the case now with the fears around Dubai. However, in recent months, gold has been trading more like a risk asset, rising at times of positive market sentiment and selling off during times of worry.
In addition, the precious metal has recently had a record-breaking streak, surging to nearly $1,200 an ounce in a short period.
The December contract gained 1.8% Wednesday on the Comex division of the New York Mercantile Exchange. Trading on the exchange was closed Thursday for the Thanksgiving holiday.
