| Gold tumbled to the lowest price since October on speculation a drop in commodity costs and a stronger dollar will reduce demand for the metal as a hedge against inflation. Silver plunged to the lowest since 2006.
The Reuters/Jefferies CRB Index of 19 raw materials dropped for a ninth straight session and is down as much as 24 percent from a record reached in July. Gold has declined 26 percent from an all-time high in March and the euro is trading 13 percent below its July peak against the dollar.
''Gold's diseased,'' said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. ''A lot of the inflationary fear has eased because we've seen energy and commodity prices come spiraling down. The dollar has not given up a lot of its gains. That's leaving traders up in the air about what to do with gold. I wouldn't want to touch it with a 10-foot pole.''
Gold futures for December delivery plunged $29.50, or 3.7 percent, to $762.50 an ounce on the Comex division of the New York Mercantile Exchange. Earlier, the price touched $761.50, the lowest for a most-active contract since Oct. 24.
Silver futures for December delivery plummeted 82.5 cents, or 7 percent, to $10.89 an ounce. Earlier, the price touched $10.81, the lowest since Oct. 5, 2006.
Silver has fallen 27 percent this year, while gold has dropped 9 percent. The declines today were the biggest since Aug. 15.
Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, has fallen 11 percent to 631.2 metric tons from a record 705.6 tons on July 11.
Oil Skid
From mid-July to Sept. 2, commodity index investors sold $39 billion of oil futures, said Michael Masters, president of Capital Management hedge fund. Ospraie Management LLC, the hedge-fund firm run by Dwight Anderson, last month said it will shut down its commodities fund after losing 39 percent this year on wrong-way bets on energy and mining stocks.
Lehman Brothers Holdings Inc., which today reported the biggest loss in its 158-year history, bought a 20 percent stake in Ospraie in 2005.
''Commodity funds are getting out,'' said Joel Crane, a metals strategist at Deutsche Bank AG. ''Ospraie is indicative of what's happening across these markets.''
Funds are unwinding bets on a gain in raw materials and so- called commodity currencies, along with wagers on a falling dollar, Crane said.
Gold, which often climbs in times of financial turmoil, hasn't benefited from a plunge in U.S. equities and the credit crisis, analysts said.
Not Normal
''Surprisingly, people have not flocked to gold as a flight to quality,'' Zeman of LaSalle said. ''Gold is not acting like it normally would. People's risk appetite is very low. No one is willing to step in and buy at this moment.''
Any rebound in metal prices will be fleeting, said Dennis Gartman, economist and editor of the Suffolk, Virginia-based Gartman Letter.
''Gold is egregiously oversold,'' Gartman said. ''It is due for a rally, but it will be short-lived and it will be technical in orientation. The trend is down. Weakness is not to be bought.''
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