Gold Slumps Over Fund Liquidation

Gold tumbled nearly 3 percent in volatile trade on Monday, ending just above $880 an ounce as a sudden rise in the dollar against the euro prompted panic selling by funds in exchange for cash.

However, a resurgence in physical demand after gold dipped below $880 an ounce put a floor in prices.

Gold was at $882.85/884.05 by New York's last quote at 2:15 p.m. an ounce (2:15 p.m. EDT), against $901.35/902.75 late in New York on Friday. It touched a session low of $877.00.

Silver fell almost 5 percent to a session low of $16.56 an ounce, then recovered and was last at $16.75/16.83 against its U.S. close of $17.36/17.43 on Friday.

The dollar rallied on expectations that the U.S. Federal Reserve will leave rates unchanged at 2 percent at its meeting this week. The euro fell on weak economic data from the euro zone.

A stronger dollar typically weighs on gold, which is bought as a hedge against weakness in the U.S. currency. A stronger greenback also makes gold more expensive for holders of other currencies.

Jonathan Jossen, an independent COMEX floor trader, said panic selling by funds and position squaring ahead of the Fed meeting pummeled gold futures.

Sanchez also cited redemptions by institutional investors and hedge funds that needed cash.

The gold contract for August delivery on COMEX division of New York Mercantile Exchange settled down $16.50, or 1.8 percent, at $887.20 an ounce.