A steep fall in gold and other commodity prices led the stock market to its worst day this year Monday, as worries about the global economy resurfaced. The Dow Jones Industrial Average dropped 265 points, its biggest loss in five months.
The first trigger came from China. News that the world's second-largest economy slowed unexpectedly pummeled commodities. In the stock market, companies that produce oil and mine for metals fared the worst. A slowdown in China, a huge importer of basic materials such as copper, would stymie profits at those companies.
Gold futures dropped $140 to $1,361 an ounce, a nine percent fall. Gold has now slumped $203 an ounce over the past two days.
Frank Fantozzi, CEO of Planned Financial Services, a wealth management firm, says people had bought gold since the financial crisis in the belief it was a safe place to keep money. But now that the metal has slid twenty percent this year, they're jumping out. "I think you're getting some panic selling right now" in the gold market, Fantozzi said. "People who have been holding on to gold expecting a rebound are now thinking, 'I'd better get out'."
Cetin Ciner, a finance professor and expert in precious metal markets at the University of North Carolina at Wilmington, said others bought gold as a protection against rampant inflation when the economy recovered. They helped push gold prices as high at $1,900 in 2011. But the high inflation they worried about still has not hit. Gold "was bound to collapse at some stage," Ciner said. "People were waiting and waiting for higher inflation, and they finally realized it's not happening."
The Dow lost 265.86 points to close at 14,599.20, a drop of 1.8 percent. Caterpillar, a maker of heavy equipment used by miners, led the Dow lower, falling three percent to $82.27. The Nasdaq composite fell 78.46 points, or 2.4 percent, to 3,216.49. The Standard & Poor's 500 index slumped 36.48 points to 1,552.37, a loss of 2.3 percent.
It was the biggest drop for the stock market since 7 November of last year.
Oil prices hit their lowest level since mid-December, and gold plunged below $1,400 an ounce for the first time in two years as a sell-off in metals continued from last week. Concerns that Cyprus and other troubled European countries may sell gold to raise cash have also weighed on prices for precious metals, Greenhaus said.
China's economy expanded 7.7 percent in the first three months of the year, well below forecasts of 8 percent or better. That news pummeled copper, oil and other commodities. Crude oil slid $2.58 to finish at $88.71 in New York trading
The plunge in commodity prices hit mining and energy stocks. Cliffs Natural Resources lost eight percent to $17.61. Freeport-McMoRan Copper & Gold fell eight percent to $29.27, the worst drop in the S&P 500. Analysts at Citigroup placed a "sell" rating on the mining giant on the expectation that copper prices will continue sliding.
Of the ten industry groups in the S&P 500, materials and energy stocks fared the worst, losing four percent. Indexes of small companies and transportation stocks, which are more vulnerable to swings in the economy, also fell four percent.
Just seven stocks rose in the S&P 500 on Monday. Among them, Citigroup inched up nine cents to $45.87, after the country's third-largest bank reported earnings that beat analysts' estimates. Stronger revenue from trading and investment banking lifted the bank's results.
Rico says he knows that gold is silly, but he can't help drooling over those bars. (And he's old enough to remember when it was trading under forty bucks an ounce...)
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