Gold, Platinum, Silver Drop to Lowest in More Than Seven Months

By Glenys Sim and Dave McCombs
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Aug. 12 (Bloomberg) -- Gold, platinum and silver plunged to their lowest in more than seven months as the dollar gained, reducing their appeal as an alternative investment.

Precious metals also slumped as declining crude oil prices cut their attraction as an inflation hedge. Gold fell as much as 2.6 percent to $802.34 an ounce, the lowest since Dec. 21, and 22 percent below its March 17 record of $1,032.70 an ounce. Platinum fell as much as 3.4 percent and silver 4.5 percent.

``The dollar had an enormous spike in the past couple of weeks, so the precious metals are losing their luster,'' Peter McGuire, managing director at Commodity Warrants Australia, said today by phone from Sydney.

Gold stocks dropped. Newcrest Mining Ltd., Australia's largest gold mining company, fell as much as 6.9 percent, Lihir Gold Ltd. 7.5 percent, and Zijin Mining Group Co., which owns China's largest gold mine, 4.6 percent.

Commodities have tumbled 17 percent since their peak on July 3 on concern a slowing global economy will reduce demand for raw materials. The dollar has climbed 5 percent on speculation falling commodity prices will boost the world's largest economy. Crude oil is trading near a 14-week low.

``We're seeing a reconfiguration of the markets in the last 48 hours related to the realization that the slowdown in the U.S. has broadened across the globe,'' Darren Gibbs, chief economist at Deutsche Bank AG in Auckland, said by phone today. ``I'd imagine all sorts of trades are being unwound.''

Metals Slump

Platinum has plunged 36 percent from its record $2,301.50 an ounce on March 4 and silver is down 33 percent from its $21.355 peak on March 17. Crude oil is 23 percent below its record $147.27 a barrel July 11.

Investment fund selling of gold, the Australian and the New Zealand dollars, may have spurred today's drop, said Toshihiko Sakai, head of trading in foreign-exchange and financial products at Mitsubishi UFJ Trust & Banking Corp. in Tokyo.

``Hedge funds are probably unwinding long positions in commodities and high-yielding currencies, and short positions in low-yielding currencies,'' said Sakai. ``These position adjustments are likely to continue for now.''

Gold fell $20 an ounce in less than an hour today as the Australian dollar dropped 0.9 percent against the U.S. dollar, Bloomberg data shows.

The dollar traded near a 5 1/2-month high against the euro today and close to a seven-month high against the yen. Oil fell 0.5 percent to $113.86 a barrel at 1:11 p.m. Singapore time, gold was down 1.4 percent at $812.22 an ounce and platinum lost 3.1 percent at $1,480.50.

Gold Stocks

Sino Gold Mining Ltd., Sydney-based owner of China's second-largest bullion mine, dropped as much as 11 percent and traded 41 cents, or 8.6 percent, lower at A$4.35 at 3:13 p.m. Sydney time on the Australian stock exchange. Newcrest Mining traded down 2.1 percent to A$23.73 at the same time.

``We've been surprised by the strength of the U.S. dollar rally over the past month,'' Goldman Sachs JBWere Pty analysts wrote in a report. ``Nevertheless, we believe the threat of rising inflation and the climate of general economic uncertainty remains constructive for gold in the medium term.''

To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net