Gold’s reputation as a haven was dented on Friday after prices fell sharply as worries over Dubai’s debt drove investors to park their money in US dollar-denominated Treasuries, driving the currency higher.
“We believe the events in Dubai have brought into sharper focus the elevated level of sovereign risk heading into 2010 and the potential pockets of US dollar strength that this can deliver,” Deutsche Bank said in a note to investors.
In morning trading, spot bullion in London fell as much as 4.7 per cent to $1,136 a troy ounce, before recovering to about $1,160 an ounce, down 2.7 per cent from Thursday’s last quote in New York.
Tobias Merath, head of commodity research at Credit Suisse in Zurich, said that gold’s price decline was “exacerbated by the appreciation” of the dollar, but he pointed out that precious metals were holding up better than other markets.
“We do not think that the Dubai news will put an end to the precious metals price rally,” he said.
Gold hit an all-time high of $1,194.5 on Thursday and investors have being buying heavily. Earlier this week, the US goverment said it had suspended sales of the world’s most popular gold coin, the American Eagle, after running out of stocks.
In London, spot silver plunged as much as 5.1 per cent to $17.66 an ounce, before recovering to $17.98 an ounce.
Other commodities were also sharply down. Oil posted heavy losses as the dollar strengthened to $1.49 against the euro, up from $1.51 earlier in the week, after Dubai’s woes questioned the health of the global economic recovery.
Olivier Jakob, head of Petromatrix, a Swiss-based energy consultancy, said that Dubai “will put in question the demand recovery led by emerging economies”, critical for high oil prices.
“It was one year ago that the world plunged into a terrible credit crisis and over Thanksgiving the Dubai World provided a wake-up call that not all is yet back to normal,” he said.
Nymex January West Texas Intermediate fell $3.71 to $74.25 a barrel, the lowest in a month and a half. The drop in WTI prices was exacerbated by high inventories in Cushing, Oklahoma, the delivery point of the contract.
ICE January Brent suffered less, dropping $1.57 to $75.42 a barrel. Brent is trading now at a premium of $1.15 per barrel against WTI, the highest since mid-August. Usually, Brent trades at a discount against WTI.
Base metals were also down. On the London Metal Exchange, copper for delivery in three months dropped 1.4 per cent to $6,730 per tonne while aluminium lost 1.2 per cent to $1,987 per tonne. Zinc, lead, nickel and tin posted losses between 1.5 and 4 per cent.
Agricultural markets were also down on thin trading because of the US Thanksgiving weekend. Corn, wheat and soyabean lost almost 2 per cent in morning trading. Sugar, cocoa and coffee were also down.
