Gold plunges to two-month low as stronger USD weighs

Forexpros - Gold futures plunged through key support levels on Wednesday, trading at the lowest level since late October as a broadly stronger U.S. dollar and fears that euro zone’s sovereign debt crisis was worsening prompted investors to sell profitable gold holdings to raise liquidity.

On the Comex division of the New York Mercantile Exchange, gold futures for February delivery traded at USD1,613.15 a troy ounce during early U.S. morning trade, plunging 3%.      

It earlier fell by as much as 3.25% to trade at USD1,609.55 a troy ounce, the lowest price since October 21.

Gold futures were likely to find short-term support at USD1,604.85 a troy ounce, the low of October 20 and resistance at USD1,681.55, Tuesday’s high.

Gold’s losses came as the U.S. dollar rallied to an 11-month high against the euro, while the dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.35% to trade at 81.25, the highest since January 11.
 
A stronger dollar saps demand for commodities as an alternative investment and makes metals priced in the currency more expensive in terms of other monies.

Concerns over the fiscal health of Italy intensified after the country’s Treasury auctioned the full targeted amount of EUR3 billion of five-year government bonds at an average yield of 6.47%, up from 6.29% at a similar auction last month.

Following the auction, the yield on Italian 10-year bonds rose above the critical 7% threshold, re-approaching the euro-era highs hit last month.

Market sentiment has been hard hit in recent days by the view that last week's European Union summit did not result in concrete plans to tackle the debt crisis in the region.

Gold futures have fallen sharply in the past three sessions, losing nearly 7%, as investors sold the precious metal to raise cash and cover losses in other asset classes. Despite the slump, gold prices are still 15% higher on the year, on track for its 11th consecutive annual gain.

European lender HSBC Holdings said earlier that, “Some macro hedge funds are liquidating gold holdings and taking profits in a difficult year. As trading volume typically drops toward year-end, we expect increasingly volatile price swings."

Elsewhere on the Comex, silver for March delivery plummeted 6.9% to trade at a ten-week low of USD29.08 a troy ounce, while copper for March delivery tumbled 3.4% to trade at USD3.325 a pound.