Gold prices slumped more than $US100 an ounce today, the biggest fall on record in dollar terms, as traders sold to cover losses, while global stocks edged up on expectations the European Central Bank will take new measures to contain the euro zone debt crisis.
Trading was volatile, capping one of the most tumultuous weeks on record for world markets as fear of a Greek default and a gloomy Federal Reserve prognosis for the US economy sparked a sell-off in stocks and commodities and drove investors to the safe-haven US dollar and Treasuries.
A pledge by G20 policy makers that they will calm the global financial system failed to appease investors, who are concerned that authorities are unable to respond effectively to the mounting euro zone debt crisis and sluggish growth in major world economies.
Gold slumped more than 6% at one point - its biggest drop since the financial crisis in 2008 - to hit its lowest since early August as a slide turned into a free-fall, with weeks of volatility and talk of hedge fund liquidation wrecking its safe-haven status.
"The bull case for gold is on pause for the near term," said Adam Klopfenstein, senior market strategist for precious metals at MF Global in Chicago.
"In the near-term, the flight-to-quality interest in owning gold is also out of the window as people are not interested in buying it even in the face of fears in the economy. Until it stabilises, I'm staying out of this market."
Spot gold was last at $US1,649 an ounce, after falling to a session low under $US1,628.
US gold futures' benchmark December contract on COMEX settled down 6%, or more than $US101, at under $US1,640 an ounce.
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At $127 an ounce, the intraday move was the biggest on record in dollar terms.
Despite its steep decline, gold remained up 16% year-to-date.
Other commodities
Copper posted its sharpest weekly decline in nearly three years; silver fell 14% to a seven-month low; oil fell to six-week lows, off as much as 9% for the week.
Investors were bracing for a slowdown in demand for raw materials after a week of news that included a downgrade of Italian debt; the third month of contracting Chinese factory data; and indices pointing to slow-growing business in Europe.
"Financial markets are sick and tired of the authorities in Europe and in the US twiddling their thumbs and not doing substantive things to solve this crisis of the global economy," said Barton Biggs, managing partner at New York-based Traxis Partners.
The US Federal Reserve on Thursday (NZT) announced of a plan to buy $US400 billion in long-term debt, disappointing many who had expected bolder steps to boost the US economy.
The Reuters-Jefferies CRB index, a 19-commodity global benchmark for the asset class, fell 1.75% on Friday, landing at its lowest point since late November.
Chinese data released yesterday (NZT) showed the factory sector contracted for a third straight month in September, while a measure of inflation picked up.
The data suggested that the world's second largest economy may not be able to counter a slowdown in the United States and Europe.
The Chinese data slammed industrial metals, as traders who had piled into those commodities with the view that China would eat up demand promptly sold them off.
London Metal Exchange (LME) benchmark copper plunged $US314 to finish at $US7,360 a tonne.
Copper posted an 18% weekly decline, its sharpest since the post-Lehman Brothers collapse in October, 2008.
The sell-off extended to other industrial metals.
Aluminum was down to its lowest price since November 2010, and nickel to a December, 2009 low.
But silver turned negative, with the spot price down almost 1% for the year.
Wheat spared
Wheat bucked the commodities rout due to market fundamentals - drought and a potential supply shortage.
But other agricultural commodities succombed to the sell-off, as did energy markets.
US corn futures fell 1.8% and touched a 12-week low.
US crude futures fell 66 cents to settle at $US79.85 per barrel. ICE Brent crude lost $US1.52 to $US103.97 a barrel after dropping to $US103.43, the lowest price since Aug. 9.
ICE raw sugar futures closed at a 3-1/2-month low on Friday and arabica coffee saw its weakest weekly performance since March 2008.
The US dollar index, which is set against a basket of major currencies, posted a 1.9 pct gain on the week, forcing some traders to liquidate oil contracts since the commodity is priced in dollars and becomes more expensive as the dollar strengthens.
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