Gold Drops Most Since 1980 in New York on Plan to Avert Crisis

Gold Drops Most Since 1980 in New York on Plan to Avert Crisis


Sept. 19 (Bloomberg) -- Gold futures in New York fell the most in almost 28 years as central banks eased investor concern by pumping cash into global credit markets and U.S. officials said they were developing a plan to stop banks from failing.

Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke proposed moving troubled assets from the balance sheets of American financial companies into a new institution. U.K. and U.S. regulators cracked down on short sellers, sending stocks in Asia and Europe soaring and reducing the appeal of bullion as an alternative investment.

``The gold price has been extremely volatile in recent weeks, being pushed from pillar to post by the dramatic movements in foreign exchange, financial and equity markets,'' David Moore, commodity strategist at Commonwealth Bank of Australia, said in a weekly report today.

Gold futures for December dropped as much as $68.50, or 7.6 percent, to $828.50 an ounce in electronic trading on the Comex division of the New York Mercantile Exchange, the biggest percentage decline since Nov. 7, 1980. In two days, the metal rose 15 percent, the most since U.S. futures debuted in 1975.

Gold for immediate delivery in London fell $20.77, or 2.4 percent, to $830.08 an ounce as of 9:46 a.m. local time.

The dollar's first increase against the euro in three days also reduced gold's attraction as an alternative investment to the U.S. currency. Gold has had a correlation of 0.68 to the euro-dollar exchange rate this year, up from 0.58 last year, Bloomberg data show. A figure of 1 would mean they move in lockstep.

Weekly Increase

The gold ``movement is primarily led by currency,'' Suki Cooper, an analyst at Barclays Capital in London, said by phone. ``We've seen the dollar strengthen, which is weighing on gold.''

Bullion remains headed for its biggest weekly gain in nine years after the U.S. took over American International Group Inc., the country's largest insurer, and Lehman Brothers Holdings Inc. filed for bankruptcy, triggering the worst market crisis since the 1920s.

``Technical indicators suggest the metal still has more room to rally and could bring the metal within range of $1,000 an ounce,'' James Moore, an analyst at TheBullionDesk.com in London, wrote today in a report.

Comex raised margin payments on gold and silver futures by as much as 47 percent after price swings accelerated.

The margin rate for Comex members advances to $5,500 a gold contract today from $3,750, the exchange said in an e-mailed statement late yesterday. The new rate for non-members is $7,425, compared with $5,063. One contract represents 100 ounces.

For silver futures, members will pay a margin rate of $6,000, compared with $5,000 previously. Non-members will pay $8,100, up from $6,750. One silver contract represents 5,000 ounces.

Among other metals for immediate delivery, silver fell 23.8 cents, or 0.2 percent, to $11.945 an ounce. Platinum dropped $11, or 1 percent, to $1,092 an ounce and palladium slipped $5.75, or 2.4 percent, to $230.25 an ounce.

BLOOMBERG