Key precious metals tumbled in late business on Thursday as bullion investors sold their holdings following declines in stock markets and increased worries about credit market troubles.
Spot gold fell 2.5 percent to a five-week low, silver slumped by more than five percent to hit its lowest in over nine months, platinum slipped nearly three percent to a 5-month low and palladium was down 5.4 percent to a 6-1/2-month trough.
It's a very nervous market unfortunately. The whole precious metals sector is down on worries about other markets. Equities are off, oil is off, gold has come off. There are still concerns about the American economy, said a trader in London.
I still think these levels could be buying opportunities but at the moment, there is too much selling. The market has been overtaken by selling by some of the funds who are selling some of their positions to make margin payments etc.
U.S. stocks dropped, pushing the three major indexes 1 percent lower, on fears that deteriorating credit market conditions could slow economic and profit growth.
Gold traditionally has been used by investors as protection against economic and political uncertainty. But in recent months it has behaved much like other financial assets because of the growing role of commodities in diversified portfolios.
Spot gold fell as low as $651.90 before rising to $654.55/655.15 an ounce by 11:08 a.m. EDT, down from $668.80/669.40 in New York late on Wednesday.
In a sign of tightening credit, Countrywide Financial Corp., the biggest U.S. mortgage lender, said it had to draw down an entire $11.5 billion bank credit line to fund its operations.
The Dow Jones industrial average was down 146.81 points, or 1.14 percent, at 12,714.66. The Standard & Poor's 500 Index was down 17.39 points, or 1.24 percent, at 1,389.31. The Nasdaq Composite Index was down 30.70 points, or 1.25 percent, at 2,428.13.
The Reuters/Jefferies CRB Index dropped to a five-month low of 304.53, the lowest since March 19 as metals, energy and grains futures dropped.
Selling pressure is more dominant as the market is more closely watching equities and currencies, said a trader at a Japanese trading house.
Near-term sentiment for gold was weak, but some traders said it was expected to be supported by seasonal demand, with Indian and other Asian players expected to enter the market to take advantage of sharp price dips.
In other metals, silver fell as low as $11.91 an ounce, the lowest since late October, and was last quoted at $12.08/12.11, against New York's $12.54/12.59.
Platinum fell to a low of $1,225 an ounce before recovering slightly to $1,231.50/1,238.50, versus $1,261/1,268 in the U.S. market. Palladium was at $329.50/333.50 after falling as low as $327 an ounce, compared with $345.50/349.50.
Despite the weakness in prices, UBS raised its price forecast for platinum for 2008 and 2009, saying physical inventories of the metal remained low.
The brokerage raised its 2008 forecast to $1,350 an ounce from $1,200 and 2009 forecast to $1,250 from $1,100. It maintained its 2007 forecast of $1,250.