Gold slid more than 2 per cent Tuesday, its biggest one-day loss since early November, as signs of an improving economy diminished safe-haven buying and a profit-taking commodities rout dragged prices off highs.
Silver fell 3 per cent and platinum group metals also dropped sharply as investors unwound solid gains made on thin volume over the holidays, when silver hit a series of 30-year highs and palladium touched a near 10-year peak. Gold had come within $10 of a new all-time high on Monday.
Independent investor Dennis Gartman viewed the commodities pullback as a healthy correction driven by unwinding of strong year-end buying by hedge funds. He noted that exchange-traded funds were rebalancing after buying a lot of gold last year.
"Do I think that the bull market in gold and crude oil and grain had suddenly ended overnight? No, Not at all. Can this correction last for a week or two or three? Of course it can, easily," he said.
Gartman said he has not changed his bullish position on commodities, even as he abandoned a "long Aussie dollar, short euro" strategy. The currency of resource-rich Australia is used by some investors as a bet on commodities' rise, he added.
The Reuters-Jefferies CRB index dropped almost 2 per cent in its sharpest one-day fall since mid-November, with investors singling out commodities as having risen too far, too fast during the holiday period. Wall Street dropped less than 1 per cent after Monday's rally.
Spot gold fell 2.4 per cent to $1,380.10 an ounce at 3:41 p.m. EST (2041 GMT), falling from Monday's intra-day peak of $1,423.57 an ounce. U.S. gold futures for February delivery settled down $44.1 an ounce at $1,378.80.
Spot silver, which has outperformed gold since September, fell 2.9 per cent to $29.78 an ounce, retreating from the previous session's peak of $31.22, its highest since 1980.
U.S. gold and silver futures volume was noticeably higher than recent weeks' as traders returned after the holiday. COMEX gold and silver turnover are 30 per cent and 13 per cent higher than their 30-day averages, respectively.
Global purchasing managers' indexes on Monday showed manufacturing growth quickened. A government report on Tuesday showed new orders received by U.S. factories unexpectedly rose in November, and orders excluding transportation recorded their largest gain in eight months.
"I think this is more of a healthy correction. The fear trade is backing off somewhat after gold has recently rallied on global economic anxiety," said Mark Luschini, chief investment strategist of Janney Montgomery Scott, a financial services firm managing $50-billion client assets.
"Data in the last couple of days only continues to affirm the organic strengthening in the economy, and that's not just only in the U.S. but in the euro zone as well," he said.
INDEX REBALANCING WEIGHS?
Some traders pinned the retreat of commodities on index rebalancing after solid gains in December.
The real test of the December rally in many commodities came on Tuesday, when traders and investors in Japan, China and the UK returned to work for the first fully active trading session in two weeks.
A rebound in the dollar added pressure on bullion, with the euro sliding from three-week highs against the dollar after unexpectedly strong U.S. factory numbers.
Despite the decline, many analysts say gold remains a good long-term safe-haven investment amid persistent concerns over euro zone debt levels and the U.S. growth outlook.
Platinum group metals, mostly used as autocatalyst to clean vehicle exhaust fumes, fell in tandem with gold and silver, even as U.S. auto sales rose to the highest rate in 16 months in December, as major automakers forecast the recovery would gather momentum in 2011.
Platinum slid 1 per cent to $1,747.74 an ounce, while palladium lost 2.2 per cent to $772.72.