Gold Prices Tumble on Euro Zone Debt Worries

Gold prices tumbled in trading today, suffering their biggest one-day loss in almost two months, as investors, worried about the debt crisis in the euro zone, sold the precious metal to cover for losses elsewhere. Gold prices also slipped after technical triggers set off sell orders.

Gold, which is seen as a safe haven asset, has seen a sharp sell-off this week, falling 4%. The major reason behind the big drop is the rush to raise cash. Silver prices also tumbled in trading today, while crude oil, which crossed $100 a barrel mark on Wednesday, also fell today.

Gold prices were also pushed lower after technical triggers triggered sell-orders. Gold extended its losses after price fell below its 50-day moving average.

Carlos Perez-Santalla, Precious Metals Broker at PVM Futures, told CNBC that it is all technicals. Perez-Santalla said that the renewed comfort level with the U.S. dollar and dollar-based assets has taken away any fresh buying in the gold market.

Meanwhile, Erik Gebhard, Principal of Futures Broker at Altawest told CNBC that on Wednesday gold closed below its 10-day moving average for the first time in about a month. Gebhard said that it is very likely we could have more weakness in the next few days.

Gold is headed for its worst weekly performance in months. Prior to this week, gold prices had rebounded sharply after brief pullback in late-September.

The drop this week once again highlights the fact that traditional inverse relationship between gold and risk assets such as equities is no longer valid. Gold and equity both climbed in the month of October. And this week, both asset classes have fallen.

At last check, spot gold was trading 2.5% lower at 1,716.90 an ounce. Earlier prices fell to an intra-day low of $1,709.64 an ounce.

Gold futures for delivery in December settled $54.10 lower at $1,720.20 an ounce on the Comex division of the New York Mercantile Exchange. Silver prices fell 6.2% to $31.56 an ounce today.

Gold prices tracked equities today, which also fell sharply as the cost of insuring French and Spanish debt rose. The S&P 500 fell 1.68% today despite some strong economic data released in the U.S. earlier in the day.

Earlier today, the Labor Department reported that initial jobless claims in the U.S. fell to the lowest level in seven months last week. The Labor Department figures showed that jobless claims fell to 388,000 last week, a level not seen since April this year. The data has once again reaffirmed that the U.S. economy is strengthening.

A separate report released by the Commerce Department showed that building permits rose sharply in the month of October.

But the data was overshadowed by worries about the escalating debt crisis in the euro zone. Investors are worried that the debt crisis is now spreading core euro zone economies. On Wednesday, Fitch Ratings had warned that the debt crisis poses a risk to U.S. banks.

There is a serious threat of contagion now. Already, the yields on Spanish 10-year bonds have touched a euro-era high. Earlier today, Spanish and French bond auctions highlighted the growing contagion fears in the euro zone.

As the crisis continues to spread to larger euro zone economies, there are increasing calls for European Central Bank (ECB) to act as a lender of last resort. The ECB has been buying Spanish and Italian bonds; however, the purchases have been limited.

The ECB, however, continues to reject the idea of acting as a lender of last resort. France and Germany, the two biggest euro zone economies, have been debating on whether the ECB should intervene more forcefully to contain the euro zone debt crisis.

Valerie Pecresse, a spokeswoman for the French government, on Wednesday said that the ECB’s role is to ensure stability of the euro and also the financial stability of Europe and the French government trusts that the ECB will take the required measures to ensure financial stability in Europe.

However, Germany is opposed to the idea. On Wednesday, German Chancellor Angela Merkel once again made it clear that Germany would resist pressure for the central bank to take a bigger role in resolving the debt crisis.

Post Written By: Ed Liston Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing in his yacht.