Gold Falls Most in 8 Months as Global Slump Cuts Commodity Use

Dec. 1 (Bloomberg) -- Gold tumbled the most in eight months on speculation that the slumping global economy will damp demand for commodities. Silver plunged more than 8 percent.

Equities in Asia, Europe and the U.S. fell following reports that showed manufacturing in China contracted last month by the most since at least 2005. Industrial declines in Europe and the U.K. also deepened. Gold is headed for an annual drop after seven straight yearly gains.

“Marginal gold investors just aren’t in the market now,” said Frank Lesh, a trader at FuturePath Trading LLC in Chicago. “Equities have been a driver for the metals because they’re a proxy for the economy. There’s not a lot of excess risk capital around to invest in gold.”

Gold futures for February delivery fell $42.20, or 5.2 percent, to $776.80 an ounce on the Comex division of the New York Mercantile Exchange, the biggest percentage decline for a most-active contract since March 19.

Silver futures for March delivery dropped 85 cents, or 8.3 percent, to $9.38 an ounce, the largest drop since Oct. 10. The metal is down 37 percent this year.

The Reuters/Jefferies CRB Index of 19 raw materials was down 3.2 percent and has dropped 35 percent this year. The dollar rose as much as 0.9 percent today against a weighted basket of six major currencies. Commodities often move in the opposite direction of the U.S. currency.

“There’s not a lot of interest in commodities, and it’s doubtful we’ll see any interest until the funds return next year,” Lesh said.

Gold ETF

Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, was at 758.1 metric tons on Nov. 28. The fund reached a record 770.6 tons on Oct. 10.

Gold gained 14 percent last month after dropping 18 percent in October.

“Price advances are at risk of unraveling in the absence of a renewed weakening in the dollar or renewed inflows into gold ETFs,” Deutsche Bank AG said in a report on Nov. 28.

Gold should be trading around $650 based on the value of the dollar, Deutsche Bank said.

Still, gold may rise above $900 on demand for a haven, said James Turk, the founder of GoldMoney.com, which held about $400 million of gold and silver in storage for investors at the end of November.

“People want physical gold,” Turk said. “They don’t want paper gold. It’s basically a question of inflation, which I expect to surge next year. People will want gold to avoid counterparty risks because of the uncertainty of the banking system.”