GOLD 0.51% $1,391.7 gold futures

crashing hard losing 21 percent this month

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    Gold sinks on recession woes

    * November 1, 2008 - 10:08AM

    Gold prices drifted lower on Friday and headed for their biggest monthly drop in more than 20 years as a strong US dollar and recession fears triggered a sell-off.

    Macroeconomic data on Thursday that showed the US economy had shrunk 0.3%, the sharpest fall in seven years, escalated recession worries and knocked down all commodities, including metals and oil.

    Platinum fell almost 6% as slowing economies around the globe and the credit crisis caused the largest auto industry companies to slash full-year profit targets, warn of job losses and push for speedy government handouts.

    Gold was at $US725.10 an ounce in New York, having trimmed losses after hitting a low of $US720.70 an ounce, compared with $US735.50 an ounce late on Thursday in New York.

    "Gold's moves today are mainly currency driven,'' said Simon Weeks, director of precious metals at the Bank of Nova Scotia. "At the month-end, flows are in favour of the dollar.''

    The US dollar was firmer against most major currencies on expectations of large dollar demand for the end of the month. Gold tends to move in the opposite direction to the dollar as a strong US currency makes bullion more expensive for local currency holders.

    "The key driver for gold at the moment is the US dollar and it looks like it is going to strengthen again and that is definitely negative for gold,'' a London-based trader said.

    US data released on Friday showed consumers cut their monthly spending for the first time in two years during September, evidently bracing for hard times as jobs continue to disappear and credit conditions tighten.

    "In times of recession, the most likely scenario for gold is it goes down a lot, especially if it is trading at historically high levels,'' said Jesper Dannesboe, senior commodity strategist at Societe Generale.

    "Because the fears of inflation will be replaced by fears of disinflation and that is a killer for gold ... I think gold is going below $US600 in this cycle.''

    The metal has lost as much as 21% of its value this month alone, and is down 12% this year, well below the record high of $US1,030.80 struck in March.

    It hit a 13-month low of $US680.80 last week after investors sold bullion to pay for margin calls. A recovery in stock markets and firmer oil spurred a rebound in gold this week but technical selling emerged after did not sustain Thursday's high.

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