By Myra P. Saefong & Nick Godt, MarketWatch
NEW YORK (MarketWatch) -- Gold futures fell by as much as $18 an ounce Friday, the selling resuming after a drop of more than 3% over the past two sessions, as global concerns about tightening on lending and interest rates continued.
A weak open on Wall Street, where earnings from several banks failed to cheer investors, also contributed to the selling pressure.
Commodities remained caught up in a broad asset sell-off amid concerns that China's rebounding economy will leading to policy tightening aimed at cooling off growth there. See Thursday's metals column.
Gold for February delivery tapped a low of $1,085 an ounce in electronic trading on Globex, but then stabilized to trade lately at $1,087.90, down $15.30. The contract lost a total of $36.80 over the last two New York sessions.
"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, 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 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 precious metal.
One U.S. dollar was buying 90.23 yen, down from 90.50 late in North American Trading on Thursday.
With government debt and budget deficits on the rise in many western countries, Hennecke said he believes 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."
In such a 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 metals prices also hurt mining shares Friday, with Freeport McMoRan Copper & Gold (FCX 75.47, -0.81, -1.06%) down 2.4%, Titanium Metals (TIE 12.52, -0.30, -2.34%) off 3% and United States Steel (X 55.73, -1.94, -3.36%) down 4.5%.
