Gold at lowest since January as traders flee again

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Gold tumbled today to its lowest price in more than two months as traders fled the metal, dashing hopes for another run soon to the $1,000 mark.

Near-term gold futures in New York slumped $24.10, or 2.7%, to $871.50 an ounce, the cheapest price since January 22.

Today’s sell-off was attributed by some analysts to a further unraveling of the ‘fear trade’ that briefly helped drive gold above $1,000 in February. In theory, investors’ growing sense of hope about an economic recovery in the second half of the year -- as signaled by the stock market’s rebound -- is reducing the appetite for havens including gold and Treasury securities.

Many other commodities, including oil, have gotten a lift in recent weeks from economic optimism along with the stock market. Gold has been odd man out, and has tanked in the last three trading sessions. Expectations of gold sales by the International Monetary Fund have weighed on sentiment.

Short-term momentum players were in control today, said Joel Crane, metals strategist at Deutsche Bank in New York. He said some traders were driven out after gold sank through its 100-day moving average price, a key technical level for chart-watchers.

He thinks the metal could rally again in the next few months. For one, Indian gold jewelry demand, a crucial element in the market, has dived this year but could revive with the latest drop in prices and with a big national festival coming up late this month.

But Crane sees the price fading again by year’s end to around $850 an ounce.

Despite rising fears that the Federal Reserve’s massive dump of money into the financial system will stoke serious inflation down the road, Crane believes that gold’s fans are too optimistic about a huge segment of the population turning to precious metals to protect themselves against inflation.

It’s more likely, he says, that many investors will look elsewhere to make a reflation bet -- the stock market, for example, or inflation-protected Treasury bonds.

His lack of faith in gold, he says, also is predicated on the idea that the dollar isn’t headed for collapse (an event many gold bugs are sure is on the horizon).

‘Unless we’re going to see sustained weakness in the dollar, I don’t think gold is going to be super exciting’ from here, Crane said.

-- Tom Petruno