Gold dips to 1-month low in commodities sell-off

By Jane Lee and Rujun Shen

SINGAPORE | Fri Sep 23, 2011 3:27am EDT

(Reuters) - Gold prices dipped 1 percent on Friday, headed for their sharpest weekly loss since May, amid a sell-off in commodities sparked by fears the global economy could plunge back into a recession.
The base metals complex suffered most from investors' rush to exit, spearheaded by a 14 percent loss in London tin prices. Asian stock markets also slid and emerging market currencies fell amid fears the developed world was stumbling back into recession.

The world's major economies pledged to prevent Europe's debt crisis from undermining banks and financial markets, and said the euro zone's rescue fund would be bolstered.

The news came a day after U.S. Federal Reserve Chairman Ben Bernanke warned of significant downside risks for economic growth, which triggered a sell-off in equities and commodities.

Spot gold fell as much as 0.9 percent to a one-month low of $1,719.8 an ounce, but quickly recovered to trade up 0.4 percent to $1,742.79 by 0708 GMT.

U.S. gold shed more than 1 percent to $1,722.3, its lowest since August 25. It stood at $1,746.20, headed for a 3.8 percent loss from a week earlier, its sharpest weekly loss since May.

Traders blamed the earlier trough to distress selling of investors who have grown increasingly uncomfortable with the turmoil on the credit market.

"More and more it seems that the commodity market is dependent on cash being free and easy," said a Singapore-based trader, "And cash isn't free and easy."

"There's a lot of concern over holding exposure to very volatile assets, when funding is so difficult and people generally are more inclined to be in cash."

The next immediate support for gold would be $1,700, and $1,650 if that was breached, traders and analysts said. Lower prices could potentially attract bargain hunters and physical buying interest.

Spot gold is expected to consolidate between $1,680 and $1,920 per ounce over the next three months before resuming its long-term uptrend, Reuters technical analyst Wang Tao said.

Silver prices tracked losses in industrial metals. Spot silver fell more than 4 percent to $34.22, its lowest since July 5, and trimmed losses to $35.25

U.S. silver tumbled more than 6 percent to $34.32, headed for a weekly loss of 15 percent -- its sharpest weekly decline since early May.

The dollar index edged down 0.4 percent on Friday, but was holding close to a seven-month high hit in the previous session, after investors fled commodities to the perceived safety of Treasuries.

"The dollar has strengthened in all of this and everyone is de-risking and putting money into the dollar because of the deteriorating economic outlook," said Soozhana Choi, head of commodity research in Asia at Deutsche Bank in Singapore.

"We saw massive de-risking across the board, and gold as well as other commodities weren't unscathed."