Gold rebounds from five-year low

At the same time, expectations of higher rates are sending the US dollar higher, further pressuring gold, which is priced in the US currency and becomes more expensive to foreign buyers when the buck climbs.

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.

Janet Yellen the Fed chairperson again gave hints that the rate would increase this year when she made an address last week to Congress.

Traders and analysts said, however, that the nature and timing of the selling suggested there was more at play than investors responding to a slight strengthening in the US dollar or lower central bank purchases.

“This implies stockpiling of around 100 tonnes a year, which is dramatically lower than market expectations”, Citigroup said in a note. In addition, investors generally buy gold during times of uncertainty.

Gold traded down 1.5%, or $16.60, at $1,115.30 a troy ounce, a level last seen in early 2010. The precious metal has now lost Rs 700 in the three days.

At the end of June, its gold holdings totaled 53.32 million troy ounces, up 57% from the end of April 2009.

“Gold dropping so sharply is a surprise and while the reports that China gold reserves were half the expected level might have inspired additional selling pressure, it is the repeated comments of commitment from the Federal Reserve that they will begin raising US interest rates at some point this year that have continuously pressured gold in recent months”.

Futures on the precious yellow metal cheapened to 1,129.7 dollars per ounce, i.e. the unit of weight used by banks jewelers.

Bloomberg reported that China’s gold purchases since 2009 were second only to those of Russian Federation, citing figures from the global Monetary Fund. The country now ranks fifth globally in gold holdings. The agreement over the Greek debt deal and the nuclear agreement between Iran and world powers have robbed gold of its sheen.

Global gold prices had plunged to as low as $1,080 per Oz Monday morning following huge gold sell-off in China.

And few investors see gold, an asset that throws off no income and costs money to hold, resuming its decade-long rally that ended in 2011.

Some observers were wondering about China’s possible involvement in the short-selling of gold Monday. Silver was down 1 percent at $14.68 an ounce.

Tracking a weak trend overseas and absence of spot demand from jewellers, gold continued its slide for the fourth straight day as prices slumped by Rs 300 to trade at fresh four-year low of Rs 25,250 per ten grammes in the national capital today.