Gold price hits 5-year low

In April 2013, when gold price fell from the peak above US$1,800 to lower than US$1,600, it triggered a “gold rush” by Chinese housewives with cash to spare.

A record 3.3 million lots of the metal, or about 33 tons, were traded on a key Shanghai physical contract Monday, compared with less than 27,000 lots on Friday, reported Reuters.

Traders said it appeared that sellers had taken advantage of a low-liquidity environment, with Japanese markets shut for a public holiday, fuelling speculative selling.

August gold dropped 2.2% to settle at US$1,106.80 an ounce on the Comex.

The selling followed China’s Friday announcement that it increased its gold reserves much less than expected over the past six years.

In fact, paper demand for gold from ETFs and stock exchanges has been declining over the past four years, said OCBC Bank economist Barnabas Gan, and it would be hard even for the world’s largest gold importer to buck this trend.

The breadth of the latest sell-off will underscore bullion’s worsening outlook as the dollar.DXY strengthens and investors brace for the U.S. Federal Reserve to raise interest rates for the first time in almost a decade.

Gold, often seen as a hedge against inflation and a weak dollar, slumped US$25 to US$1,106 an ounce overnight.

Monday’s declines comes amid growing expectations for an increase in U.S. interest rates later this year and after China’s central bank indicated its gold reserves were half the expected level.

Earlier today, an ounce of gold fell below $1,100 an ounce to $1,080, its lowest level since February 2010.

According to analysts, the continued strength of the U.S. dollar is also making gold less valuable. “I just feel there’s a big push to get gold below $1,100 and then we bounced very quickly”, said a trader in Hong Kong.

Bullion prices generally have come under pressure from expectations of higher interest rates in the United States, which boosts the US dollar and makes non-interest bearing assets such as gold less appealing.

In addition, gold has lost ground in recent weeks from receding fears over the Greek debt crisis.

Paulsen also says that a further strengthening of the dollar isn’t a given. Spot platinum was down 0.9 percent at $968.95 an ounce, while palladium was down 1.1 percent at $618.90, both trading near multi-year lows. Holdings in top gold-backed exchange-traded fund (ETF) SPDR Gold Trust fell for a fourth day on Tuesday, declining another 4.8 tonnes to hit their lowest since 2008. Low prices tempted some buyers back to the market on Wednesday, but gains remained muted.