07:27 EST
THE INTERNATIONAL spot gold market held above $641 in the first-half of London trade on Wednesday. But after Tuesday's $10 sell-off, 'gold hits 3-month low as investors flee risk,' reports Reuters.
Today's AM Fix came in at $642.85 per ounce the lowest gold price in Dollars since March 5th. For British investors wanting to buy gold today, the metal on Wednesday dipped below £322 per ounce. French and German investors found the metal trading below €478.50 also a 5-month low.
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Why the plunge in gold, traditionally viewed as a 'safe haven' asset? The metal has now sunk three times as the Japanese Yen has risen, losing out alongside a sell-off in stocks and the broader commodity markets.
Although it's impossible to quantify, the size of long-gold positions held by Japanese investors and institutions able to borrow Yen at near-zero rates to fund speculative trades for more than a decade is clearly hurting the gold price every time the Yen bounces.
Overnight the Japanese Yen pushed back the Dollar by 0.4%. It rose that much versus the Euro too, which had previously hit a fresh life-time high against the Japanese currency.
The Nikkei stock index in Tokyo dropped 1.2% today to record its lowest close in two weeks. The European bourses ticked lower Wednesday morning. Wall Street futures also pointed lower following a 2.4% drop in the Dow Jones US Home Construction Index on Tuesday.
That move came on data showing the price of new US homes dropping 2.1% year on year in May. The number of US home-buyers now late with one outstanding mortgage payment is at a 13-year high according to the Federal Deposit Insurance Corp.
Now defaults on subprime US mortgage loans will 'grow and grow like a weed' according to Bill Gross, head of the world's largest bond fund, Pimco. His latest note to Pimco clients also warns about the looming collapse of the market in collateralized debt obligations (CDOs) complex credit derivatives often issued against bonds backed in turn by residential mortgage loans.
Speaking of the credit-rating agencies that approved many CDOs are investment-grade debt, Gross writes: 'AAA? You were wooed, Mr. Moody's and Mr. Poor's, by the makeup, those six-inch hooker heels and a 'tramp stamp'. Many of these good looking girls are not high-class assets worth 100 cents on the Dollar.'
In the broader markets, copper also fell for the fourth session running today, while zinc futures traded in Shanghai dropped 4%. Rubber and palm oil both fell overnight, while platinum has now lost more than 2.1% from yesterday's opening. Silver prices, the first precious metal to begin dropping on Tuesday, have now lost nearly 6% from yesterday's London start.
'Behind the slump in the New York gold market [on Tuesday] is risk aversion,' reckons Satoshi Matsunaga, analyst at Mitsui Bussan Futures in Tokyo. 'Unwinding of Yen carry trades is going on.'
Tokyo gold futures dropped 2% at the Tocom today. The world's biggest gold ETF, StreetTracks GLD, recorded net redemptions of 11 tonnes from the bullion it holds in trust for US investors since Monday.
'Gold has dropped down to its 200-day moving average which seems to be providing some support,' says Phil Smith for Reuters India Market Technicals today. He puts the next level of support in the gold market around the March low of $632.30 per ounce.
If you'd like to buy gold bullion at today's 3-month Dollar discount, be sure to visit BullionVault for live spot prices and low dealing fees today.
Adrian Ash is editor of Gold News and head of research at www.BullionVault.com, the fastest growing gold bullion service online
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