Gold drops 1 percent on crude losses, Goldman warning

By Frank Tang

NEW YORK (Reuters) – Gold dropped 1 percent on Tuesday, on track for its biggest fall in a month, as a sharp drop in crude oil following another bearish forecast from Goldman Sachs dragged the metal further from record highs.

Bullion also weakened after data showed the U.S. trade deficit shrank in February, a sign of slowing global demand. Gold has benefited in the past several months as rallies in oil and grains stoked inflation worries.

Silver fell from Monday’s 31-year highs.

“That (Goldman report) has given enough reasons for investors to trim their positions, in particular for those markets that have gone parabolic. That’s enough to cool enthusiasm for commodities at the moment,” said Mark Luschini, chief investment strategist of broker-dealer Janney Montgomery Scott with $53 billion of assets under management.

But he added: “I don’t think this is the end of the commodity bull market.”

Spot gold dropped 1 percent to $1,451.40 an ounce by 11:46 a.m. EDT (1546 GMT), having earlier hit a one-week low of $1,443.49. On Monday, gold hit a record at $1,476.21.

U.S. gold futures for June were down 1.1 percent at $1,452.60 an ounce, with trading volume rebounding after slower-than-normal activity in the last several sessions.

Goldman Sachs (GS.N: Quote, Profile, Research) rocked oil markets for a second day by calling a near $20 fall in the price of Brent crude in the coming months, saying speculators have pushed prices ahead of fundamentals.

It was the second warning of a steep market reversal from the long-term commodity bull in as many days, as bullion also fell sharply on Monday after Goldman recommended clients close a trade heavily weighted toward U.S. crude futures.

Poor investor sentiment more than offset weakness in the dollar, which fell to a 15-month low against the euro. (FRX/: Quote, Profile, Research)

“Commodity prices, not only gold but also the base metals and the energy space are not profiting from the weaker dollar,” said Commerzbank analyst Daniel Briesemann.

“Market players are taking the opportunity to take some profits after the sharp rises of the last few days or weeks,” he said.

Commodities investors also took heed of a warning by the International Monetary Fund on Monday that soaring oil prices and inflation in emerging economies pose new risks to global recovery even as they are not yet strong enough to derail it.

The threat to global inflation from higher energy prices has been one of the driving forces behind gains in gold.

Silver reversed earlier gains to trade down 0.5 percent at $39.97 an ounce, and was about 5 percent below Monday’s 31-year high at $41.93.

Among platinum group metals, platinum eased 0.3 percent at $1,774.49 an ounce, while palladium fell 1.7 percent to $768.

(Additional reporting by Amanda Cooper in London and Lewa Pardomuan in Singapore; Editing by Dale Hudson)

Gold drops 1 percent on crude losses, Goldman warning