Gold slides 4 percent, near 3-year low as Wall Street rallies

By Frank Tang and Jan Harvey

NEW YORK/LONDON (Reuters) - Gold tumbled 4 percent on Wednesday, taking it near a three-year low as a rallying U.S. equity markets further cut into demand for bullion as a hedge against economic uncertainty.

Silver dropped 5 percent and platinum group metals also declined sharply.

Bullion tumbled again even after the U.S. government slashed its estimate for first-quarter economic growth, which made investors less worried that the Federal Reserve would move soon to end its U.S. economic stimulus.

Bullion has slid around $125 an ounce in four sessions since the Fed signalled it plans to wind down the era of easy money. With two trading days left in the second quarter, gold was down 23 percent for the period, on course for its biggest quarterly decline since Reuters began tracking gold prices in 1968.

"We bought gold for two reasons: because we were worried about the inflationary impact of policy and because we thought the financial system was going to fall apart," said Sean Corrigan, chief investment strategist at Diapason Commodities Management.

"Although it may be completely the wrong judgement, the market has decided that none of those at the moment is a concern," Corrigan said.

Spot gold slumped to its lowest since August 2010 at $1,223.54 an ounce. It was last down 4 percent at $1,225.91 an ounce by 3:08 p.m. EDT (1908 GMT).

U.S. gold futures for August delivery settled down $45.30 to $1,229.80. Trading volume exceeded 315,000 lots, sharply above its 30-day average of 211,000, preliminary Reuters data showed.

Gold, which has lost more than a quarter of its value this year, accelerated losses during Wednesday's session as the S&P 500 rose. The benchmark U.S. stock index was up more than 1 percent in late trade.

"People want risk-on and gold is therefore seen as a source of cash and not as a safe haven, because that's not needed," said Simon Weeks, head of precious metals at the Bank of Nova Scotia.

On Tuesday, the world's largest gold-backed exchange-traded fund posted its biggest outflow in two months. Holdings in SPDR Gold Trust fell 16.23 tonnes, 1.65 percent from the day before, to 969.50 tonnes, their lowest since February 2009.

On charts, several technical analyses including the relative strength index suggested gold is oversold, said Carlos Perez-Santalla at brokerage Marex Spectron. "A pop could be expected if another test of the downside fails," he said.

Silver fell to its lowest since August 2010 at $18.39 an ounce. Spot prices were later down 5.2 percent at $18.57 an ounce.

ETF OUTFLOW, ASIA DEMAND EYED

The world's No. 1 gold ETF the SPDR Gold Shares reported the biggest one-day drop in its holdings in more than two months at 16.23 tonnes on Tuesday. That brought the fund's total outflow for the year to 381 tonnes.

Further weighing on gold, demand in the No. 1 consumer India is likely to fall this quarter as the government moves to curb gold imports.

Worries about a liquidity crunch in China also pressured physical gold demand, analysts said.

Among platinum group metals, platinum was down 3.8 percent at 1,298.99 an ounce, while palladium slid 4.9 percent to $629.97 an ounce.

(Additional reporting by Veronica Brown in London; Editing by Marguerita Choy and David Gregorio)

Source: http://news.yahoo.com/gold-slides-4-percent-near-3-low-wall-200638692.html

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