Global Prices of Gold, Platinum Fall to Lowest in Over 5 Years

Gold’s slide has helped wipe out half the gains from the last decade’s historic Bull Run, taking prices back to a key chart level and threatening a break towards $1,000 an ounce.

On the Shanghai Gold Exchange, more than five tons of gold were sold during the first few minutes. It is the first time in months that the price of oil has dipped below $50.

Locally listed gold-related stocks fell, with Zijin Mining Group (2899) losing 6.3 percent to HK$2.23. Everything speaks against rising gold prices. However, gold prices most likely will stay soft for a while as doubts probably will linger as to China’s gold hoarding ways.

The sell-off follows large redemptions from a leading exchange-traded gold fund. On Friday the SPDR – the largest gold ETF – reported outflows of 11 tones, the biggest one-day outflow in a year. Gold now accounts for 1.65 per cent of China’s total foreign exchange reserves, compared with 1.8 per cent in June 2009, despite the increase in tonnage.

“The ratio is expected to rise to 5 percent in the future amid the Yuan internationalization”. The Wall Street Journal Dollar Index, which gauges the U.S. dollar against a basket of 16 currencies, was recently up 0.3% at 88.48.

Gold prices remain weak after they hit a five-year low on 20 July, as analysts expect further erosion in the value of the precious metal.

Another reason behind the gold drop lies in the strengthening dollar relative to many global currencies. That tends to dent demand and, in turn, pull prices lower.

“More volatility may come, but it looks like the market has not taken the opportunity to cover short positions or indeed, used the decline in prices as a buying opportunity”, he added. On Friday, China said its gold reserves are 57 per cent higher than they were six years ago.

Some analysts noted China’s buildup of gold reserves was smaller than expected but acknowledged that does not fully explain the intense speculative selling in thin, early Monday morning trading.

Silver is often considered a cheaper alternative to gold.

Spot platinum was down 1.1 percent at $966.74 an ounce, while palladium was down 1.7 percent at $615, both trading near multi-year lows.

The dollar’s growing strength and the anticipation of higher U.S. interest rates have made the greenback the more attractive option for storing wealth, undermining gold as well as other precious metals and jewels.

A looming increase in U.S. interest rates has been a key driver in gold’s descent along with sluggish demand in top consumers China and India.