TORONTO — Gold prices plunged to their lowest level in more than two years Monday, accelerating a months-long trend and taking the glitter off investments in both bullion and the mining companies that produce it.
On the New York Mercantile Exchange, June gold futures closed down $140.30 at US$1,361.10 an ounce in the biggest one-day percentage drop since at least February 1983.
At that, the precious metal was still $6 above its worst levels of the day following a $63 drop on Friday. Monday’s settlement level was the lowest since February 2011.
Bullion’s fall was reflected by gold stocks, with some well-known names again trading sharply lower after big declines last week, with the sector as a whole declining more than eight per cent Monday.
Shares in Barrick Gold Corp (TSX:ABX) continued to be among the hardest hit, falling $2.64, or 11.51 per cent, to $20.30 on volume of more than 11 million shares, making it again one of the most active issues on the Toronto Stock Exchange. Barrick stock lost about 15 per cent of its value last week and now is at its lowest price in about a decade.
In addition to falling bullion prices, Barrick faces other problems, including an injunction issued last week by a Chilean court halting construction on its $8-billion Pascua-Lama mine high in the Andes on the border with Argentina. That prompted investment bank JPMorgan to downgrade Barrick to neutral from overweight on Monday.
The massive drop in bullion prices came amid a general meltdown for commodities such as oil, down $2.58 at US$88.71 a barrel, and copper, off eight cents at US$3.27 a pound, following data that showed weaker than expected economic growth in China.
Commenting on the “collapse” of gold prices, Scotiabank chief foreign currency strategist Camilla Sutton said in a commentary there are worries of forced liquidations of gold inventories.
“Potential European central bank selling combined with two major banks issuing sell recommendations last week seem to have sparked the sell-off,” Sutton noted.
There has been speculation that Cyprus may sell a chunk of gold reserves to finance its part of a financial rescue. Though that may not materialize, it was enough to prompt some investors to think that a gold-selling strategy may be used elsewhere in the troubled eurozone.
Among other gold miners on the Toronto exchange, Osisko Mining Corp (TSX:OSK) was down a whopping 21 per cent at $4.04 on volume of 10.5 million shares.
Goldcorp (TSX:G), which has taken over from Barrick as the leading gold miner by market capitalization as its stock has been less severely punished in the recent slide, was down 5.6 per cent Monday at $28.38 on more than 33.5 million shares, easily the most active on Toronto’s main board.
That reduced its market capitalization to $23 billion, down from $24.4 billion on Friday but now above Barrick’s equity value of about $20.3 billion.
Also suffering punishing losses were Kinross Gold (TSX:K), down 13.5 per cent at $5.54; Torex Gold (TSX:TXG), down 12.5 per cent at $1.26 and Yamana Gold (TSX:YRI), down more than eight per cent at $12.15.
The precipitous drop in gold prices has taken it from above US$1,600 just 10 days ago and there is talk in the markets that a number of institutions are cashing in following a reduction in gold price predictions from leading investment banks, including Goldman Sachs.
Last week, Goldman Sachs lowered its average gold price forecast for 2013 to US$1,545 an ounce, although it fell well below that level in Friday’s rout alone.
Another possible reason for the drop in gold is that the U.S. Federal Reserve will outline a strategy to withdraw its monetary stimulus later this year despite recent mixed signals out of the U.S. economy.
One of the reasons why the price of gold has been so strong in recent years has been a direct result of the Fed’s policy — the new dollars created under so-called quantitative easing have found themselves recycled in financial markets and many of them have gone to the perceived haven of gold.
“Investors are clearly turning away from gold here, using the price action as justification for unwinding positions and taking capital away from what was once considered as almost a one-way bet,” said David White, a trader at Spreadex.
“Even those naturally contrarian are struggling to find reasons to own gold.”
Bullion, after hitting all-time highs near US$1,900 an ounce in August 2011, has since trended lower, with the decline accelerating since the new year.