China sells gold, sharply pulls down price

Gold prices fell to as low as $1,088.05 an ounce on 20 July – the weakest level since March 2010 – led by a selling spree in China and expectations of an increase in US interest rates.

Spot silver, the least hit among precious metals in Monday’s slide, was up 0.6 percent at US$14.74 an ounce.

Gold prices plunged more than 4 percent to five-year lows on Monday as a sudden bout of selling across Shanghai and New York markets during the illiquid early Asian trading hours triggered a mini flash crash, deepening bullion’s biggest rout in years.

The expectations that the US Federal Reserve would raise interest rates this year, the first time in a decade, drove up the dollar against a basket of currencies on Wednesday and also raised the lure of other competing investment products.

Quam Securities senior research analyst Colin Lam Tsz-chun said the price may dip below US$1,000, which is “a good price for bargain hunting”. “Gold is priced in Dollars and often trades in the opposite direction from the world’s premiere paper currency”, said Colin Cieszynski, a strategist with CMC Markets in Toronto. You can only make money from gold by selling it on.

“The ratio is expected to rise to 5 percent in the future amid the yuan internationalization”.

Other precious metals, including silver, palladium and platinum, were also sharply lower on Monday.

Dealer Nick Rose, at trading firm TradeNext, said that the latest price slump was sparked by Chinese sellers offloading large quantities of the metal.

Gold has been falling since it ended a 12-year rally in 2013, coinciding with a strengthening US dollar. That tends to dent demand and, in turn, pull prices lower.

That’s changing: China plans to boost transparency by reporting on its reserves more frequently, as it pushes play a bigger in global financial markets. Australian gold miners Evolution Mining saw their share price drop more than 13 per cent in early trade on Monday, while Regis Resources, Northern Star Resources and Newcrest Mining were all down by more than 8 per cent, according to the BBC.

“But that’s not what we’re seeing in the market these few days”. The new data from the People’s Bank of China suggests that China now has 53.3 million ounces (1658 tons)-a whopping 57% increase!

Precious metals traders say they expect a ceiling on gold around its current level or that it could move still lower due to an expected interest rate hike later this year by the U.S. Federal Reserve. Because gold is a store of wealth for investors, but generates no returns from regular interest payments or dividend income.