By Myra P. Saefong, MarketWatch
TOKYO (MarketWatch) -- Gold futures fell by as much as $12 an ounce Friday morning in Asia, extending their losing streak after suffering a drop of more than 3% over the past two sessions in New York.
The market was caught up in a broad asset sell-off amid concerns China's economic growth will leading to policy tightening there. See Thursday's metals column.
Gold for February delivery tapped a low of $1,090.50 an ounce in electronic trading on Globex, but recovered slightly to trade at $1,092.40, down $10.80 by Tokyo's late morning trade. The contract has already lost a total of $36.80 in the last two New York sessions.
On Thursday, February gold ended floor trading on the New York Mercantile Exchange down $9.40, or 0.8%, at $1,103.20 an ounce.
"With fear returning to markets and investors' minds after they had previously bought into the recovery story, most assets have been sold off sharply, including gold, helped by interest-rate-hike fears that have encouraged those speculating with borrowed funds in carry-trade currencies -- such as the yen, [U.S. dollar] or also Swiss Franc -- to unwind their positions," said Martin Hennecke, an associate director at Tyche Group Ltd. in Hong Kong.
"This is why we advise clients to stay clear of any form of debt, including mortgages, and not to speculate in any asset class for the short term," he said.
Strength in the U.S. dollar against other major foreign currencies on Thursday contributed to declines in New York gold prices, but renewed weakness in the greenback failed to rally any fresh support for the yellow metal.
One U.S. dollar was buying 89.85 yen in Asian morning trade, down from 90.50 late in North American Trading Thursday.
Government debt and budget deficits of the major Western countries have surged beyond control, so ultimately, the financial crisis will be "taking the form of a sovereign debt crisis and a sell-off of such debt, along with an erosion of trust in the affected currencies and accordingly very high inflation/hyperinflation," said Hennecke.
"In this scenario commodity prices, particularly precious metals such as gold and silver, will be highly sought-after again as inflation- and default-risk safe-haven assets," he said.
The drop in gold prices hurt metals mining shares in Asia Friday, sending Newcrest Mining Ltd. (AU:NCM 33.31, -0.80, -2.35%) (NCMGF 30.20, -3.55, -10.52%) down 2.5% in Sydney, Sumitomo Metal Mining Co. Ltd. (JP:5713 1,394, 0.00, 0.00%) (STMNF 15.40, -0.45, -2.84%) losing 3.8% in Tokyo, and Zijin Mining Group Co. (HK:2899 6.86, -0.27, -3.79%) (ZIJMF 0.90, -0.03, -3.23%) trading 2.4% lower in Hong Kong.
