Investors have turned sharply negative on the precious metal as the USA dollar rises in expectation the Federal Reserve will raise interest rates this year.
Gold slumped Monday to the lowest point in almost five and a half years, weighed down by the strong dollar and reports of massive selling in China, dealers said.
“It was down to speculation here, someone taking advantage of the low liquidity environment”, Victor Thianpiriya, commodity strategist at ANZ, told reporters. Prior to Monday, the volume for July had averaged less than 30,000 lots.
Another potential reason behind the sell-off could have been Friday’s news from the People’s Bank of China that it owns around 1,658 tonnes of gold bullion – far less than the circa 3,500 tonnes analysts had expected.
“The Fed’s decision to restock the rate toolkit has got the gold market very nervous”, George Zivic, a New York-based portfolio manager at OppenheimerFunds Inc., which oversees $235 billion, said by phone.
In an official statement on Friday, China stated that its gold reserve had increased 57% at June end from the previous adjustment that it made over 6 years ago. Gold now accounts for 1.65% of China’s total foreign exchange reserves, compared to 1.8% in June 2009 despite the increase in tonnage.
As of 1030 BST, gold futures for August delivery were holding down 1.58% to $1,114 per ounce – near a five-year low – after having bottomed out at $1,188 per ounce during Asian trading hours, following a 4% drop.
The dollar is coming off its best week in two months after Federal Reserve Chair Janet Yellen reaffirmed the outlook for rate hikes this year in the US and as concern over Greece and China’s stock rout receded.
Spot platinum fell 1.4 per cent to $US991 an ounce, the lowest since February 2009. Palladium dipped to its lowest price since October, 2012.
Gold prices in euros have climbed about 7.5 percent in the past year, while in yen the metal is up more than 5 percent.
In China, the largest consumer of metals, grains and energy, the statistics office last week defended its gross domestic product data after economists questioned recent numbers that showed the economy is growing faster than anticipated.
On Comex too, there was brisk selling in early morning trade, but the prices later recovered a bit due to a technical pullback.
The strengthening USA dollar also lessens the investment appeal of gold, and the greenback has indeed been climbing recently.
Technically, the break through the $1,130 support level leaves bullion looking weak.
“Also, rising risk appetite is pushing up equities and adding to the pressure on gold prices”.
The euro, on the other hand, hit its lowest since late April but last traded up 0.2 pct at $1.0853. In global markets, silver opened at $14.64 an ounce, fell to $14.54 and then traded around $14.80 level later in the day.
