Gold Drops as Stock Plunge Prompts Investors to Switch to Cash

By Glenys Sim

Oct. 27 (Bloomberg) -- Gold fell in Asia as investors sold the precious metal for cash after equities extended a slump on concern the global economic slowdown is deepening and government measures won't be enough to stimulate growth.

Asia's benchmark MSCI Asia Pacific Index fell for a fourth day, by as much as 6.2 percent, even after the Bank of Korea cut borrowing costs by an unprecedented 75 basis points and Japan said it will compile a package of measures to support the country's stock market.

``Gold is a safe haven but right now people are just fleeing for cash,'' said Tetsuya Yoshii, vice president for derivative products at Mizuho Corporate Bank Ltd., in a Bloomberg Television interview today.

Gold for immediate delivery fell as much as 1.5 percent to $723.78 an ounce, and was at $725.28 at 3:22 p.m. in Singapore. Earlier the metal rose 1.7 percent. Silver for immediate delivery was down 2.5 percent at $9.13 an ounce.

Merrill Lynch & Co. reduced its gold forecast ``to reflect a resurgent U.S. dollar and a decline in short-term inflationary pressures'' as a result of the recent plunge in commodity and energy prices. The bank cuts its 2008 price target to $890 from $910 and kept its 2009 estimate unchanged at $1,000 an ounce.

The dollar advanced to $1.2473 versus the euro at 3:27 p.m. in Singapore from $1.2623 late Oct. 24. The dollar is reasserting its status as the world's reserve currency as investors, banks and even companies are scooping up dollars to repay loans denominated in the currency as the 14-month-long credit crisis intensifies.

Lower Mine Supply

Gold for December delivery lost 0.9 percent to $723.50 an ounce in after-hours electronic trading on the Comex division of the New York Mercantile Exchange. Gold for August delivery in Tokyo was up 1.7 percent to 2,146 yen a gram ($720 an ounce) at 3:13 p.m. Singapore.

``We believe that in the near term gold will be supported by global economic turmoil and financial uncertainty,'' Merrill analysts led by Jason Fairclough wrote in a report today. ``Looking ahead over the next few years, we see declining mine supply, lower central bank sales, stable fabrication demand, lower producer de-hedging, and slightly lower investment demand.''

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