Gold falls below $1,200 to 34-month low on U.S. economic data

Gold futures tumbled below $1,200 an ounce, extending a slump to a 34-month low, as U.S. economic data topped estimates by analysts, eroding the metal’s appeal as a store of value.

In May, consumer spending rebounded and pending home sales jumped to the highest since 2006, while jobless claims fell last week, reports showed today. Assets in the SPDR Gold Trust, the world’s biggest exchange-traded product backed by the metal, have slumped 28% this year to the lowest since February 2009 amid an equity rally and muted inflation.

“When the market gets into a trend, people just want to follow it, and now we’re in a severe downtrend, so the psychology has become terrible,” Donald Selkin, who helps manage $3 billion of assets as chief market strategist at National Securities Corp. in New York, said in a telephone interview. “If any of the big holders that are still in the ETF start getting forced to sell, it could be big a wild card.”

Gold futures for August delivery dropped 1.5% to close at $1,211.60 at 1:46 p.m. on the Comex in New York. After the settlement, the metal touched $1,196.10, the lowest since August 2010.

This quarter, the price headed for a record slump, partly because gains in the economy have boosted speculation that the Federal Reserve will scale back U.S. monetary stimulus that helped drive gold higher last year.

‘Panic Selling’

The metal may fall as low as $800 “in panic selling,” Selkin said. That would mark the cheapest since December 2008.

The Fed said on June 19 that asset purchases may be scaled back if the economy continues to improve. Gold has tumbled 28% in 2013 after posting 12 straight annual gains.

Billionaire John Paulson is the largest holder in the SPDR, which has plunged $35.2 billion in value this year.

Gold more than doubled from the end of 2008 to a record $1,923.70 in September 2011 as the Fed cut interest rates to a record. The metal fell into a bear market in April, and the decline has “shattered” the confidence of investors betting on an extended rally, according to Credit Suisse Group AG. Morgan Stanley and Goldman Sachs Group Inc. trimmed price forecasts this week.

This quarter, gold has slumped 24%. The Dow Jones Industrial Average gained 3.1%.

‘Grind Down’

“Nobody wants to own gold anymore,” Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago, said in a telephone interview. “We’re getting a continuous grind down with heavy liquidation. All the news about the U.S. is not helping, and the markets are looking forward” to better prospects for the economy, he said.

Silver futures for September delivery dropped 0.3% to close at $18.553 an ounce on the Comex. The metal has plunged 39% this year.

On the New York Mercantile Exchange, platinum futures for October delivery rose 1.7% to $1,329.10 an ounce, the biggest gain since June 3, amid labor unrest in South Africa, the world’s biggest producer.

“Supply-side concerns in South Africa remain,” Michael Smith, the president of T&K Futures & Options in Port St. Lucie, Florida, said in a telephone interview. “Strong economic data out of the U.S. is providing support to precious metals that have industrial use.”

Palladium futures for September delivery gained 2.8% to $650.70 an ounce on the Nymex, the biggest gain since May 28.

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