* Gold, commodities hit by latest wave of deleveraging
* U.S. stocks down 5 percent, triggering gold decline
* IMF sees developed economies contracting in 2009
(Recasts, updates with quotes, closing prices, market
activity, adds NEW YORK to dateline)
By Frank Tang and Jan Harvey
NEW YORK/LONDON, Nov 6 (Reuters) - Gold dropped 1 percent
on Thursday, erasing early session gains as fresh worries about
a global recession prompted funds to ditch assets from gold to
commodities and stocks.
"We seemed to be seeing a resumption of fund deleveraging.
Gold has had a pattern recently -- starting out the day on a
firm note but as the day goes on the market weakens," said Bill
O'Neill, managing partner of New Jersey-based LOGIC Advisors.
"Gold is just not attracting any of the flight to safety
demand. As long as we have deleveraging, the market is not
making any headway," O'Neill said.
Spot gold <XAU=> was at $734.30 at 2:57 p.m. EST (1957
GMT), down 0.9 percent from Wednesday's close of $740.60.
U.S. December futures <GCZ8> settled down $10.20, or 1.4
percent, at $732.20 an ounce on the COMEX division of the New
York Mercantile Exchange.
Equity markets from Europe to North America languished
despite a spate of interest rate cuts by central banks, with
the European Central Bank, the Bank of England and the Swiss
National Bank all opting to reduce rates.
When rates fall, the appeal of non-interest bearing
investments such as gold increases.
U.S. stocks tumbled with the Dow and S&P 500 down about 5
percent, triggering widespread liquidation in commodities as
equity investors needed cash to cover margin calls, traders
said.
Tumbling oil prices also weighed on bullion. U.S. crude
futures dropped nearly $5 to just over $60 per barrel. <O/R>
However, gold should be bolstered as a safe haven in the
longer term as a deepening economic downturn continues, traders
said.
"Things are going to be quite poor in the fourth quarter
and gold is starting to react to that," said Standard Chartered
analyst Daniel Smith. "There is more recognition that we are
heading into a global recession."
The International Monetary Fund said prospects for global
growth have deteriorated in the last month and developed
economies are heading for their first full-year contraction
since World War II. []
Traders are now awaiting U.S. nonfarm payrolls data, due on
Friday, for clues to the next direction of trade.
The announcement is likely to have a significant effect on
the currency markets, which will impact gold. The precious
metal is often bought as a hedge against weakness in the U.S.
dollar and typically moves in the opposite direction to it.
"Despite the rate cuts, many participants may remain
sidelined until tomorrow's U.S. nonfarm payroll data is
released," said Standard Bank analyst Walter de Wet.
SILVER DEMAND FIRM
Among the other precious metals, spot palladium <XPD=>
closed essentially flat at $216, erasing gains from the early
sessions when it had jumped more than 5 percent.
The metal has benefited from bargain hunting after prices
slipped more than 50 percent since July. However, a slowdown in
demand for the metal from carmakers, the major users of
palladium, could still weigh on prices.
"All European car companies are now well hedged in both
palladium and platinum, so any price increase will be fully
speculative," said one German-based trader.
Platinum tumbled more than 4 percent as investors took
profits after Thursday's hefty rise.
Spot platinum <XPT=> fetched $826, down 4.2 percent from
Wednesday's finish.
Meanwhile silver <XAG=> was at $10.07, down 2.6 percent
from Wednesday's close of $10.34.
While prices remain closely correlated to the dollar,
physical demand for the metal remains firm, with holdings of
the world's largest silver-backed exchange traded fund, the
iShares Silver Trust, still only 2 percent down from all-time
highs.
(Additional reporting by Chris Kelly in New York; Editing by
Christian Wiessner)
