Gold Plunges to Lowest Price in Over Five Years

Gold earlier breached the key support level as the dollar gained following Federal Reserve Chair Janet Yellen’s comment that the central bank is on course to raise interest rates if the US economy continues to expand.

Gold’s decline on Monday was exacerbated by big trading volumes on the Shanghai Gold Exchange after investors dumped more than $500 million of bullion in seconds during early Asian trading hours.

Heavy selling on the Shanghai Gold Exchange and New York’s Comex yesterday morning sent gold tumbling from US$1,132 an ounce to US$1,089 in just minutes.

China said on Friday its gold reserves were up 57 per cent at the end of June from the last time it adjusted its reserve figures more than six years ago. “This implies stockpiling of around 100 tonnes per year, which is dramatically lower than market expectations”, Citigroup analysts wrote.

“No matter how minimal the rate increase is, the perceived threat of the increase has completely reversed the sentiment for gold”, said Bob Haberkorn, a senior commodities broker with RJO Futures in Chicago.

In the national capital, gold of 99.9 and 99.5 per cent purity tumbled Rs 150 each to Rs 25,550 and Rs 25,400 per 10 grams respectively, its weakest level since August 8, 2011.

“There is to my mind no coincidence that this happened in the quietest, thinnest period of the week”, said David Govett, head of precious metals at Marex Spectron in London.

New Zealand Mint chief executive Simon Harding said the price of gold had dropped US$54 per ounce over the past week.

Holdings in the world’s biggest gold-backed exchange-traded fund, SPDR Gold Shares (GLD), fell for a fourth day on Tuesday by another 4.8 tonnes, the least since 2008.

In wider markets, the dollar hit a three-month high against a basket of currencies, making dollar-priced gold more expensive for holders of other currencies.

The slide has helped to wipe out half the gains from the last decade’s historic bull run, taking prices back to the keychart level and threatening a break toward $1,000 an ounce.

Other metals that are dollar denominated dropped on Monday, including platinum, which was down 2%. The bailout of Greece has calmed fears of general instability, lessening the metal’s attractiveness as a safe haven. Gold worth US$1.3 billion changed hands on the Chinese and U.S. markers, and the lack of liquidity on a day when Japanese markets were closed for a holiday hastened the slide.