(Recasts, adds quotes, closing prices, market activity,
byline; changes dateline to NEW YORK, pvs LONDON)
By Frank Tang
NEW YORK, March 19 (Reuters) - Gold tumbled 6 percent to a
three-week low on Wednesday, marking its biggest one-day
percentage drop in nearly two years as investment funds
switched hot money out of the bullion market in a broad-based
commodities retreat.
Other metals tracked gold, with platinum slipping more than
3 percent to a one-month low, silver falling over 7 percent to
a three-week low and palladium posting sharp declines.
Fund managers, however, said they were still optimistic
about the long-term trend of gold because aggressive rate cuts
by the U.S. Federal Reserve and economic uncertainties should
boost gold's appeal as an inflation hedge as well as a safe
haven.
Thomas Winmill, portfolio manager who oversees $280 million
of assets of Midas Fund <MIDSX.O> in New York, said that funds
and investors moved money out of commodities as they believed
that the U.S. economy should recover soon.
"There is fund liquidation and they are reallocating to
currently the hot and potentially recovering part of the
market," said Winmill, referring to U.S. stocks, which had
rallied 3 percent on Tuesday but turned nearly 2 percent lower
by Wednesday afternoon.
Winmill said that the run in gold was far from over and
bullion could rise further due to inflation fears.
"But the long-term fundamentals for investor demand is
still in place. I think a total of 100 basis points cut in the
Fed Funds rate is just adding adding fuel to the fire of the
negative interest rate environment," which should boost gold,
Winmill said.
Spot gold <XAU=> fell to a low of $940.40 an ounce and was
at $944.20/945.00 by New York's last quote at 2:15 p.m. EDT
(1815 GMT), against $1,002.30/1,003.10 late in New York on
Tuesday.
The active U.S. gold contract for April delivery on the
COMEX division of the New York Mercantile Exchange settled
$59.00, or 5.9 percent, lower at $945.30, which marked the
biggest one-day percentage loss since June 13, 2006, when it
had fallen 7.3 percent.
Gold sank on Wednesday amid a full-scale pullback of all
commodities. The Reuters Jefferies CRB Index <.CRB> slid 4
percent, led by gold and a 6-percent drop of crude oil futures
<CLc1>.
The dollar turned higher against the euro <EUR=> in
volatile trading, drawing support from losses in gold futures,
currency traders said.
The greenback was also lifted after the two largest U.S.
mortgage finance companies on Wednesday won approval to pump up
to $200 billion into the distressed U.S. mortgage market, the
latest step in government efforts to stabilize credit markets
and save the economy from recession.[]
Caesar Bryan, portfolio manager of the $670-million GAMCO
Gold Fund in New York, said the dollar's rise stirred fears
that central banks might intervene in the currency markets to
boost the dollar's strength, which could dampen gold's appeal.
"Maybe the gold market is saying: Watch out. Maybe there is
some central bank intervention coming, which will rally the
dollar. Though it could be temporary, it's enough to get some
selling interest in the gold," Bryan said.
Traders also said that the April contract's sharp
turnaround after rising to a record high of $1,030.80 on Monday
suggested that a top is forming in the price of gold.
"A lot of technical support is being breached. In the gold,
you're really just seeing a technical sell-off here, and some
profit-taking from the run to $1,030 an ounce," said Zachary
Oxman, senior trader with Wisdom Financial in Newport,
California.
In other metals, spot platinum <XPT=> fell as low as $1,890
an ounce and was last quoted at $1,900/1,910, against
$1,960/1,970 late in New York on Tuesday. It hit a record high
of $2,290 on March 4.
Silver <XAG=> fell to $18.35/18.40 an ounce from its
previous finish of $19.76/19.81 while palladium <XPD=> fell to
$455/460 an ounce from $477/482 late in the U.S. market on
Tuesday.
(Additional reporting by Anna Ringstrom in London; Editing by
Marguerita Choy)
