09/08/07: Gold drops more than 2%

The price of gold dropped by more than two per cent today (Thursday, August 9th), due to a drop in physical demand for the metal.

Spot gold fell from $674.20 per ounce to a low of $659.50, before finishing the session at $662.50, Reuters reports.

"A lot of investment funds are in trouble nowadays and if this continues, they would reduce a lot of risk positions, including gold, in their effort to generate some dollars," said Michael Kempinski, Commerzbank precious metals trader Michael Kempinski.

"Physical demand is not strong anymore. There is a risk of downside movement in gold."

The selling of gold reserves by some European investment banks was also a factor contributing to the slide.

John Reade of UBS Investment Bank said the people were selling gold in order to raise dollars and avoid risk.

Other analysts claimed that the current global credit storm could cause more bad news for bullion as investors believe an era of risk aversion has taken hold.