Gold dives to lowest since 2011

One-kilogram 24K gold bars are displayed at the Chinese Gold and Silver Exchange Society, Hong Kong's major gold and silver exchange. Gold futures notched their biggest one-day fall in over a year on Friday in New York. [Shanghai Daily]

Gold futures have notched their biggest one-day fall in more than a year.

Gold for June delivery fell US$63.50 to close at US$1,501.40 an ounce in New York on Friday, the largest drop since February 2012. It was the lowest price since July 2011.

One trigger for the slide was a government report on Friday that US wholesale prices fell in March by the most in 10 months. Investors tend to buy gold when they expect inflation to rise. Any indication that prices aren't rising will prompt investors to sell gold.

A proposal last week that Cyprus sell some of its gold holdings to help finance a bailout for the country also rattled the gold market. If Cyprus were to sell some of its gold, the thinking goes, so might other economically distressed countries in Europe like Italy, Spain and Portugal.

Gold was already declining in recent months on signs of strength in the US economy and expectations that interest rates might increase. Disagreement among Federal Reserve officials over when to wind down its economic stimulus program has led traders to anticipate that US interest rates might edge higher sooner than previously thought. That would tend to strengthen the dollar and weaken gold, since another reason investors buy gold is to hold it as an alternative to US dollars. When traders expect the dollar to rise, they would sell gold.

Gold peaked at US$1,900 an ounce in August 2011, during the market turmoil that occurred after Standard & Poor's downgraded the US government's credit rating. It has more recently traded as high as US$1,792 an ounce on October 4. Since then it has fallen US$291 an ounce, or 16 percent.

Silver also fell. Silver for May delivery plunged US$1.37 to US$26.33 an ounce, a loss of 5 percent.

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