Gold plunged for the second straight day Monday, dropping more than 8% at midday in what was shaping up as the metal’s biggest one-day percentage decline in 30 years.
Gold for April delivery, the front-month contract, was down 8.6% at $1,372.10 a troy ounce on the Comex division of the New York Mercantile Exchange at midday in New York, its lowest price in more than two years.
Trading volume hit an all-time high, exceeding 590,000 contracts. The previous record was 486,315 contracts set Nov. 28, 2012, according to CME Group Inc., CME -1.54% which owns the Comex.
The latest selloff came after China registered weaker-than-expected growth, stoking concerns that consumers there and in India—the world’s two biggest buyers—may slow their purchases.
Traders said part of the plunge in prices was a result of investors choosing to sell gold instead of putting up more money as collateral to keep their wagers open. Traders typically put down just a small percentage of a gold contract’s full value in order to trade it, and this amount, known as margin, must be increased when prices fall.
Gold for June delivery hit a low of $1,355.30 an ounce, a decline of 9.7%, in intraday trading. The precious metal later pared losses to trade down $128.90 an ounce.
The depths of Monday’s selloff at one point exceeded the one-day percentage decline of 9.6% on Feb. 28, 1983. Gold prices fell 11% on March 17, 1980.
“All of a sudden, the price is below $1,500, and you have to put up more money,” said Jeffrey Christian, chief executive at metals-consulting firm CPM Group. Faced with such choices, more and more investors are choosing to dump their gold holdings rather than risk riding out the selloff, he said.
“I’m sure there are a lot of margin calls being triggered and positions being blown,” said Bob Haberkorn, senior commodities broker with RJO Futures.
Gold’s plunge came as concerns about global financial stability, higher inflation and the world economy—which had supported gold prices—have eased, analysts said.
Instead, traders were pursuing higher-yielding assets more aggressively, after several years of low interest rates have left many market participants with paltry returns.
“Everybody that’s bought for the past two years, since April 2011, is losing money,” said Ira Epstein, director of the Ira Epstein division at the Linn Group futures brokerage. “It’s a sea of red,” he said.
Worries were spreading that Asian buying, which has helped prop up gold prices for years, may be weakening. China reported its economy unexpectedly slowed last quarter, spurring fears Chinese consumers, faced with less cash, may stop purchases.
In India, a gold industry group warned that the country is losing confidence in the metal because of its recent slide. Investors in Europe cashed out of gold en masse Friday amid concerns U.S. stimulus may come to an end earlier than expected, and following news Cyprus may sell a chunk of its gold reserves to fund part of its bailout package.
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