Gold Falls Most in Seven Weeks as Equities, Commodities Slump on Euro Debt

Gold fell the most in more than seven weeks as commodities and equities slumped after Fitch Rating said U.S. banks face a “serious risk” from Europe’s debt woes. Silver, palladium and platinum also tumbled.

The MSCI World Index of equities dropped for a fourth day, and the Standard & Poor’s GSCI index of 24 raw materials fell the most in eight weeks. Fitch said yesterday that “the broad credit outlook for the U.S. banking industry could worsen,” unless Europe’s woes are resolved soon. Gold has risen 21 percent this year on demand for a store of value.

“Apparent liquidation from fear of possible contagion from the European crisis has commodities, including gold, under continued pressure,” Miguel Perez-Santalla, a sales vice president at Heraeus Precious Metals Management in New York, said in telephone interview. “This is a big collapse.”

Gold futures for December delivery fell 3 percent to settle at $1,720.20 an ounce at 1:40 p.m. on the Comex in New York, the biggest drop for a most-active contract since Sept. 23.

Silver futures for December delivery plunged 6.9 percent to $31.497 an ounce on the Comex, the biggest drop since Sept. 23.

Gold could retreat to $1,705, Perez-Santalla said, without giving a time frame. Prices touched a record $1,923.70 on Sept. 6.

‘Investors Move Out’

The lingering debt crisis means “investors move out of risky assets,” said Marcus Grubb, the managing director of investment research at the World Gold Council. “They move out of equities, they move into short-dated bonds and into cash, and they even move out of gold because they tend to take profit in it to shore up losses in the rest of their portfolio.”

Grubb spoke today on Bloomberg television’s “Countdown” with Owen Thomas from London.

Average physical-gold purchases in the past two weeks in India, the world’s biggest consumer, have been the lowest since mid-June 2010, UBS AG said in a report.

The dollar gained against a basket of major currencies for the fourth straight day.

“We have seen some selling in the past few sessions because of the dollar’s strength and the debt crisis in Europe,” David Meger, the director of metal trading at Vision Financial Markets in Chicago, said in a telephone interview. “However, it’s a matter of time before the safe-haven story is back.”

On the New York Mercantile Exchange, palladium futures for December delivery retreated 7.8 percent to $603.70 an ounce, the most since May 2010. Platinum futures for January delivery slipped 3.1 percent to $1,581.10 an ounce, the largest drop since Oct. 4.

To contact the reporters on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net; Debarati Roy in New York at droy5@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net