Last updated: November 28, 2012 6:05 pm

Gold posts largest fall in three weeks

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Gold fell more than 2 per cent on Wednesday, its largest decline in three weeks, on the back of a strengthening dollar and amid worries about US budget talks.

Despite an agreement this week on aid for Greece among eurozone finance ministers, commodities investors were also increasingly nervous about sovereign debt, and the yellow metal fell sharply to a two-week low after being hit by large sell orders.

While some traders initially suggested a “fat finger” error by a trader, some analysts said short-term investors, who were behind last Friday’s rally in gold, may have taken profits.

“In a sense, the market has been fumigated,” said Edel Tully, precious metals strategist at UBS in London, referring to the removal of the potential overhang in speculative positions.

Gold declined to $1,705.64 a troy ounce, falling through technical support levels, before trading at $1,713.93 a troy ounce, down 1.6 per cent on the day.

Although the precious metal has been buoyed several times this year by expectations of a boost from US monetary easing, it has struggled to maintain its upward momentum. Brokers and analysts noted the persistent lack of physical demand by consumers, which is regarded as being crucial in supporting the market.

Gold price

Indian investors, among the leading buyers of the yellow metal, have been largely absent, mainly because of the weakness in the currency. “The gold price in India has taken a substantial step change at the start of July last year, partly due to a higher gold price and partly due to a much weaker rupee,” said Walter de Wet at Standard Bank.

Although the rupee strengthened in early October, it has fallen again and the gold price denominated in the Indian currency remains at levels similar to that in September, when it hit record highs.

“We really need more investment in the actual market itself to see higher prices,” said David Govett, head of precious metals at commodities broker Marex Spectron.

Gold market jitters spread to other commodities, with copper for three-month delivery on the London Metal Exchange falling 1.5 per cent to $7,681 a tonne. Crude oil also retreated, with ICE January Brent down $1.28 to $108.59, a two-week low, as investors shifted their focus from bullish factors, such as tensions in the Middle East, to the US debt negotiations, which if they were to fail, could dampen fuel and energy demand.

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