Investors Sell Gold to Cover Losses

As markets had their biggest one-day sell-off since the 2008 financial crisis, instead of flocking to save-haven investments like precious metals (NYSE:DBP), investors began selling off gold futures at record high prices in order to cover losses in other markets.

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The Swiss franc (NYSE:FXF) and Japanese yen (NYSE:FXY) are both notoriously safe investments, but today both fell against the U.S. dollar (NYSE:UUP) as their governments instituted monetary easing policies to devalue the currencies. The news gave the markets a bad start this morning, which was only worsened by a disappointing ECB bond-buying session, and the weight of more negative economic data.

Usually the price of gold (NYSE:GLD) moves counter to the markets, as do the yen and franc as people look to invest their money somewhere safe, but that wasn’t the case today. The yen and franc quickly became unsafe, and the result was a market sell-off so bad that the best performers of the three major indices — the Dow Jones Industrial Average (NYSE:DIA) — dropped 4.31% today to 11,383 points, its lowest level since December of last year. The S&P 500 (NYSE:SPY) and the Nasdaq Composite (NASDAQ:QQQ) erased all of their 2011 gains and then some.

The result was investors selling gold (NYSE:GLD), which has been climbing through all this economic turmoil to a record high price of $1,684.90 before today’s sell-off, allowing investors to sell their gold for a profit in order to cover their losses as they were forced to exit their equity positions. While the price of gold still remained high, gold for December delivery fell to $1,651.40. Meanwhile, silver for December delivery fell to $38.95, down 7.94% off its high. September silver fell 5.6%, its worst drop since May 11, while palladium futures fell 5.3% and platinum fell 3.1%.

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Gold (NYSE:GLD) prices may drop below $1,600 before resuming their climb, which could rally to $1,730. Gold has already gained 17% this year, but according to Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago, “Margin liquidations are forcing investors to sell the good to save the bad,” with gold being the good, and just about everything else comprising the bad.