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FTSE slumps: investors dump shares, run to gold

Global stock market sell-off gathers pace amid continuing commodities rout, while gold jumps in flight to safety.

 
FTSE slumps: investors dump shares, run to gold

Update: The sell-off in global stock markets has gathered pace, as oil remained below the $30 mark and a wider rout in commodities accelerated.

The FTSE 100 fell 133 points, or 2.3%, to 5,785, mirroring heavy losses across global markets. US markets lurched lower at the open, with the Dow Jones down 2.4% and the S&P 500 falling 1.9%, while losses on eurozone markets were even more severe.

France's CAC 40 fell 2.9%, Germany's DAX 30 dropped 2.4%, Italy's FTSE MIB lost 2.3% and Spain's Ibex was trading 2% lower.

Amid mounting fears over faltering growth, investors fled to the safe haven of gold, sending the precious metal to $1,093 an ounce, up from $1,083 on the day.

On the FTSE 100, the sell-off engulfed nearly every stock on the index, with only a handful making gains, including gold miner Randgold Resources (RRS), up 2.8% at £43.42.

Mining stocks extended their losses as metal prices were hit by the commodities crunch and BHP Billiton (BLT) was forced into a $7.2 billion (£5 million) writedown of its US shale assets, sending its shares 6.8% lower to 611.9p. Anglo American (AAL) tumbled 11% to 233.8p, and Antofagasta (ANTO) was down 5.8% at 351.4p.

Fresh oil slump drags down FTSE

(10:33) A fresh plunge in the oil price has weighed on the FTSE 100, while miners tumbled after copper fell to fresh lows and BHP Billion suffered a writedown.

Oil fell below $30 a barrel, down 3.1% on the day, giving up yesterday's gains and trading at near 12-year lows. Brent crude has now fallen 20% since the start of the year.

That weighed on the FTSE 100, which dropped 54 points, or 0.9%, to 5,865. 'Equity markets already continuing to retrace towards recent lows after what was nothing more than a teasing bull-trap rally exacerbated by short squeezes,' said Mike van Dulken, head of research at Accendo Markets.

'And it's the same old drivers pulling sentiment south; oil back below $30 a barrel and China jitters still to the fore.'

Analysts at Commerzbank cut their oil price forecasts but argued for some recovery over the course of 2016, predicting a $50 price by the end of the year, down from their previous $63 estimate.

'The recent price slide had been triggered by market turmoil in China, with concern over weaker demand in the second-largest oil consuming country increasing as a result,' said Carsten Fritsch, adding that tensions between Saudi Arabia and Iran had 'increased the risk of a price war'.

'Most of these arguments are not really new, nor can they be confirmed by available data,' he added. 'For instance, Iran's upcoming return to the market has been known for the last six months and Chinese oil imports recently even marked record highs. We therefore believe the latest drop in prices is overdone.'

Energy stocks fell on the news, with Shell (RDSb) down 2.1% at £13.61, BP (BP) 2.1% lower at 340.6p and BG (BG) dropping 2% to 935.3p.

But miners were the biggest fallers on the index, as copper fell to fresh six-and-a-half year lows and BHP Billiton (BLT) was forced to write down the value of its US shale assets by $7.2 billion (£5 billion), heightening fears a dividend cut is on the cards. Shares in the miner fell 5.8% to 619.2p.

That hit the rest of the mining sector, which gave up the bulk of gains made in yesterday's brief relief rally. Anglo American (AAL) fell 8.6% to 240.4p, Glencore (GLEN) dropped 6.9% to 73.2p, Antofagasta (ANTO) shed 5% to 354.4p and Rio Tinto (RIO) traded 4.4% lower at £16.58.

On the FTSE 250, commodities stocks fell into the red. Vedanta Resources (VED) fell 6.6% to 225.7p, Tullow Oil (TLW) was down 6.6% at 129.7p and Evraz (EVRE) dropped 5.3% to 60p.

They were joined at the bottom of the index by Moneysupermarket (MONY), down 6.6% at 327.5p after reporting a bigger-than-expected contraction in its insurance division in the fourth quarter.

Among 'small cap' stocks, the mining rout hit the BlackRock World Mining (BRWM ) investment trust, down 4.6% at 164.1p after it warned of another difficult year ahead because of over production from the sector. Shareholders in the trust lost 37% last year. 

3 comments so far. Why not have your say?

Richard Gabb

Jan 15, 2016 at 19:24

Hey Ho, yet again. FTSE back to where it was 20 years ago. Invest for the LONG term will continue to be the mantra. Still I suppose most of us are living longer.

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Nick-

Jan 16, 2016 at 15:38

At least the Stockbrokers are doing fine with this continual merry go around of up and then down, buy and sell. They are having a happy new year with all these masterminded fees being generated by the clan.

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Fred Bloggs

Jan 17, 2016 at 11:54

The performance statistics on Gold and the FTSE depend on which start and end dates one takes. Personally I use the start and end of a calendar year.

Using this and taking a very long term view, an equal sum invested in Gold and the FTSE at the beginning of 1984 would have yielded a profit (in Sterling terms) of 171% on Gold and 528% on the FTSE. I say Sterling terms since I am in the UK and would be buying and selling using Sterling; the statistics for other currencies would be very different.

If I had invested the same equal amount in both Sterling and the FTSE at the beginning of each year and sold at the end of the year from 1984 to the end of 2015 I would have a profit of 139% on Gold and 225% on the FTSE.

Gold has outperformed the FTSE in 12 of the past 32 years, however splitting this period in two would show that in the first 16 years Gold only outperformed the FTSE in 3 years, whereas it outperformed the FTSE in 9 years in the second 16 year period.

The above statistics neglect any costs associated with holding large quantities of Gold, and any dividends that would have been derived from the FTSE. Other dealing costs on both have also been neglected. It is probable that adding these factors into the statistics would show an even larger out-performance for the FTSE over Gold over the long term.

The article states that "investors fled to the safe haven of gold", however the Gold price only moved 0.9%. The gold price is also lower at the moment than it was earlier in the year (in US$ terms) and 3 months ago. I think we need to see a price of >US$1200, or maybe continued daily changes of >+1% for a period of several weeks, before can say that investors are "fleeing" to Gold.

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