Spot Gold Prices fell hard against all major currencies in early US trade on Thursday.
Breaking the calm that gold had offered to investors during the global credit crunch to date, the 2.2% drop came as world stock markets continued to plunge.
By 16:00 in London, the Dollar Price of Gold had bounced off a 6-week low of $654 per ounce. The S&P index on Wall Street stood 0.8% lower. But while the US stock market has now dropped more than one-tenth of its value since mid-July, gold prices remain less than 2% lower for US investors.
Versus the Japanese Yen – still rising strongly against all major currencies on the forex market – gold sank to a five-month low beneath ¥74,900 per ounce. But measured against the Euro and Pound Sterling, the Gold Market merely tracked to a one-week low of €489 and £330 respectively.
"There's just a lot of people running scared," one gold trader in Chicago to Bloomberg. "People are selling gold to cover losses in other markets."
Forced sales by hedge funds and other large investors needing to repay debt or meet withdrawals by clients appeared to blame for further sharp losses in Asian, European and US security markets. As the London close drew near, the benchmark FTSE100 index stood more than 200 points lower, down below 6,000 for the first time since March and recording a 3.1% loss for the day.
"Long conversation with a Prime Broker regarding one of my highly levered funds yesterday," reports the anonymous London hedge fund manager at FinTag.com. "Upshot is they want 50% of the loan back. So like everyone else facing a similar credit squeeze, we liquidated a large chunk of the funds positions and the markets took another dip."
Meantime in the Gold Leasing market, the cost of borrowing gold remained high after last week's jump in lending rates. The major members of the London Bullion Market Association charged 0.26% above the cost of borrowing US Dollars for a one-year loan of gold on Thursday morning.
Put another way, the major bullion banks are now demanding a greater premium in return for lending out Physical Gold Bullion than at any time since Nov. 2004.