Gold prices hit five-year low on Chinese sell-off

Gold prices hit five-year low on Chinese sell-off

Bullion fell to as low as $1,088.05 an ounce - its weakest since March 2010 - shortly after the Shanghai Gold Exchange opened trading, with volumes soaring to a record level.

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China said on Friday its gold reserves were up 57 percent at 1,658 tonnes at the end of June from the last time it adjusted its reserve figures more than six years ago.

Gold prices in Mumbai plunged by Rs 520 per 10 grams as the yellow metal fell as much as 4 per cent to their lowest in more than five years in global markets on Monday as sellers in top consumer China offloaded the metal.

With investors finding less and less reason to hold gold as an insurance against risk and the dollar strengthening ahead of what is expected to be the first increase in US interest rates for nearly a decade, spot gold fell $45.55 to its weakest since March 2010 at $1,088.05 an ounce shortly after the Shanghai Gold Exchange opened, with volumes soaring to a record. It regained some ground, trading above the key $1,100 support level, but was still down 1.8 per cent at $1,113.80 an ounce.

In Mumbai, gold prices tracked the global trend with standard gold closing lower at Rs 25,250 per 10 grams on Monday as against Rs 25,770 on Friday and pure gold at Rs 25,400 as against Rs 25,920 per 10 grams.


With this, standard gold has fallen 5.57 per cent in the last three months from Rs 26,690 on April 20, 2015.


Hareesh V, Research Head, Geofin Comtrade, said, “a strong dollar and expectations that the US Federal Reserve will hike their interest rates by the end of the year triggered selling pressure on gold and took prices to their lowest point since April 2010. The US greenback rallied to a three-month high following comment from the Fed Chairperson last week, which eased gold’s appeal as a safe haven. Huge selloffs witnessed in Chinese futures market and breaking the key technical support of $1130 has ignited liquidation

pressure.” Further, easing tensions in Greece, upbeat global equities and weak demand from the top consumers India and China pushed prices into bearish territory. “Looking ahead, as long as prices stay below the immediate support of $1,140 expect a dip towards $1080 initially, which if cleared convincingly would take prices as low as $1042/990 levels later. At the same time trend reversal point is seen at $1224,” he said.

India Ratings said movements in gold prices will largely depend on the US interest rate decision. In the event of a US rate hike, global gold prices could drop and range between $ 900/oz-1,050/oz. However, they are unlikely to remain at the lower end of the range and will possibly settle at around $ 1,000/oz. As such, the domestic price of gold may decline and range between Rs 20,500 to Rs 24,000 per 10 grams from.

However, if the US continues to delay the interest rate hike, while major economies such as Japan and the eurozone continue with their unconventional monetary policy (UMP), the price of gold could creep up to and range from $ 1,300/oz to $ 1,350/oz in FY16. Correspondingly, domestic prices could also increase from current levels and trade in the range of Rs 29,500-30,500 per 10 gm. If major global currencies, other than the US dollar (USD), weaken because of economic concerns, even in the absence of a US rate hike, one may observe brief spells of simultaneous strengthening of gold price as well as the American dollar, India Ratings said.

The overall global gold demand during the next 12 to 18 months is likely to exhibit a low single digit growth rate, it said.

This would be driven by muted global jewellery consumption as well as the continuation of the popular perception of reduced attractiveness of gold investments on the anticipated US rate hike. Gold mining (around 70 per cent of the global supply) output which has been ramped up since 2008 will have difficulty adjusting to the weak demand. However, gold supply from scrap is likely to adjust downward sharply, which to an extent may address the oversupply issue.