Gold plunges to five-year low on stronger dollar

This comes after the US Federal Reserve chair Janet Yellen indicated that interest rates could be hiked this year. That triggered a renewed bout of selling in commodities markets around the world, with precious metals, including gold, hit hard. This makes the dollar more expensive from the perspective of countries other than the United States.

The trillions of dollars that were pumped into global financial markets led to multiyear rallies in many assets, including gold. Earlier spot prices touched their lowest since March 2010 at $1,087.04 an ounce. However, this is probably not the ideal time to rush into the precious metal markets. Rising equity and property prices, which have reached bubble-like proportions, have weaned away interest from gold. Later, the price recovered to Rs 25,120. Oil prices and other commodities also nose-dived.

Within a further minute, the deals had been completed, sending the most-active US gold futures contract down US$48 to as low as $1,080.00 (RM4,095.25) per ounce, its weakest since February 2010.

It was expected that figure would be much higher, as Beijing has a stated goal of increasing its reserves of precious metals and foreign currencies.

Van Sambeek said there was speculation that lower gold stock holding data from China may have spooked investors that there was not enough demand coming out of the Chinese market.

The volatile price action has not dented the interest of onshore traders, he said. Prices were down as much as $40 per ounce when markets in Asia started trading at 9:30 p.m. ET Sunday, prior to stabilizing during European trading.

Five-year chart of gold shows the yellow metal’s mighty fall.

“It’s a bit of speculative selling going on”, said Victor Thianpiriya, analyst at ANZ Bank in Singapore. “I don’t see any recovery in gold prices at this stage”.

In mid-morning New York trade yesterday, gold stood at US$1.102 an ounce. Investors shed gold to increase their cash liquidity in anticipation of finding bonds that will pay a higher interest rate.

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. Some analysts said that gold investors might have realised China would not be buying up a lot more gold. 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.

Silver is often considered a cheaper alternative to gold.