Gold futures up nearly 2% after sharp selloff

Gold futures up nearly 2% after sharp selloff

Gold prices were up over 1% as buyers took advantage of the drop in gold prices, following the metal's worst selloff since the 1980s. US stocks rebounded along with gold, racing ahead after the previous session's selloff on Wall Street.

By Myra P. Saefong and Barbara Kollmeyer
April 16, 2013, 11:44 a.m. EDT
Market Watch

SAN FRANCISCO (MarketWatch) — Some buyers waded into the gold market on Tuesday, driving prices up by more than 1% following the metal’s worst selloff since the 1980s that prompted an increase in the amount of money investors need to trade gold futures contracts.

Gold for June delivery GCM3 +2.06% rose $25.80, or 1.9%, to $1,386.90 an ounce on the Comex division of the New York Mercantile Exchange after touching a hit above $1,400.

Gold futures on Monday plunged $140.30, or 9.3%, to $1,361.10 an ounce. The slide marked the precious metal’s biggest one-day percentage drop since February 1983. Gold’s one-day dollar drop was the biggest since January 1980 and the second-largest in its history.

“There was serious technical damage inflicted and renewed selling may occur, but I believe the froth is over,” said Peter Hug, global trading director at Kitco Metals.

“This is not a green light for traders to go long without tight stops, but a reaffirmation that metals should be considered an insurance holding for conservative investors,” he said in a daily note. “You don’t cancel your life insurance because you feel particularly healthy one morning. If you believe the pundits that are now claiming the global economy is becoming healthy, I’d change your doctor.”

Still, gold prices Tuesday traded off the session’s high after a spate of U.S. economic data Tuesday showed a jump in construction of new homes, an increase in industrial production and a deceleration in consumer inflation.

The CME Group Inc. CME +0.97% , the parent company of the main metals and energy exchanges in the U.S., said Monday it was raising the collateral requirements for trading in benchmark gold, silver and other precious-metals futures contracts.

The CME raising margin requirements will help lower short-term volatility, said Jeffrey Wright, managing director at Global Hunter Securities.

Collateral, or margin, to trade benchmark Comex 100-troy-ounce gold futures will be increased by 19%, and the margin to trade silver will rise 18%. Margin increases tend to be implemented during times of market turbulence.

The increases are effective at the close of business Tuesday.

U.S. stocks rebounded along with gold on Tuesday, racing ahead after the previous session’s selloff on Wall Street. Analysts said the latest data on consumer inflation, showing few price pressures, mean the Federal Reserve will unlikely take its foot off the gas pedal of quantitative easing any time soon.

Of course, recent minutes from the Fed’s March meeting showed some members favored an early end to the central bank’s asset-purchase program, and HSBC said in a note on Tuesday the minutes were “ostensibly gold bearish.” Gold is used by some as a hedge against inflation, though that relationship has been clouded over by several other factors recently. Read: 6 reasons for gold's massive selloff: HSBC

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