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Gold beaten down by stock market falls

LONDON - Gold dropped to a one-week low on Wednesday as falling stock markets stoked fears about another global flight from risk, while industrial metals were supported by tight supply and oil markets awaited key US data.

Gold, traditionally seen as a safe investment in times of economic uncertainty, was hit by the Asia-led market plunge of early March, and took another knock after fears about US banks’ exposure to risky borrowers triggered sharp falls on bourses across the world.

“It is another culprit this time but gold and other metals are again the victim,” investment bank Dresdner Kleinwort said.

“The reputation of being a safe haven does not come to the rescue. The renewed round of equity sell-off and yen strength is not based on rumours but on longer lasting economic developments. Therefore, gold might be in for another strong move to the downside,” the bank said.

Gold XAU fell to $639.75 per ounce by 1041 GMT, its lowest since March 6, when worries about higher borrowing costs in Japan and a possible blip in Chinese economic growth hit markets.

Data on Tuesday showing a further deceleration of the US housing market increased concerns about demand in a key market, with the Mortgage Bankers Association saying US housing would not regain its footing until near the end of 2007.

Base metals resist drag

Industrial metals, whose prospects to rise rely heavily on strong economic growth in China, resisted the drag from equities markets.

Nickel MNI3, a key input in stainless steel, traded just below the all-time high of $44,750 per tonne it hit on the London Metal Exchange on Tuesday.

It has more than doubled in price over the past year on tight supply and strong demand.

Copper MCU3, often considered the bellwether metal, slipped very slightly in early business and was quoted at $6,190/6,210 at 1046 GMT. At this level, copper is well off the all-time high of almost $9,000 touched last year but almost 40 percent up since the start of the year.

“Base metals should prove more resilient given that the developing world rather than the developed world is the main driver, and that supply/demand fundamentals remain tight,” UBS base metals strategist Robin Bhar said.

Metals proved more robust than mining stocks, which were sharply down in London.

Diversified miners BHP Billiton BLT.L, Anglo American AAL.L and Xstrata XTA.L had lost between 2.8 and 4.23 percent by late morning, while the FTSE 100 share index .FTSE was down 1.6 percent.

Oil, while not immune to developments in other markets, was waiting for data about the amount of oil in US stockpiles, while ministers from countries in producer group OPED were in Vienna ahead of a meeting on Thursday that will set output.

Analysts expect the US data will show gasoline stocks falling but crude stocks rising.

Brent crude LCOc1 was unchanged at $60.90 per barrel by 1102 GMT.