Gold prices continued falling on Monday, hitting a more than five-year low. Though prices partially rebounded from a sharp selloff in the early Asian session.
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 dropped sharply early Monday, falling below $1,090 in a matter of minutes, before quickly recovering some of the losses.
A big Chines fund is suspected of selling their holdings of gold estimated at around 2.7 billion. The price action does not seem to be driven by fundamentals. The nature, size and timing of the heavy selling suggests a market participant was taking advantage of low liquidity or some sort of forced selling had taken place.
In Shanghai, close to 5 metric tons of gold was sold on the Shanghai Gold Exchange in a two-minute window just prior to 9.30 a.m. local time, in a market where the normal daily volume traded is 25 tons, the market observers reported. There was an unusual spike in trading volumes in a gold futures contract even in U.S.-based Comex, just before Shanghai.
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.
In its first update in more than six years, the People’s Bank of China on Friday reported its gold reserves at 53.32 million troy ounces, up 57% from the end of 2009 but only about half of what market observers had estimated. China is one of the world’s biggest gold buyers.
The report on China’s reserves tops a growing list of factors tarnishing the precious metal in recent weeks. Positive U.S. economic data, from home-building statistics to consumer prices, has firmed expectations the U.S. Federal Reserve will raise short-term interest rates later this year.
The bearish sentiment about gold has increased since last week after U.S Federal Reserve Chairwoman Janet Yellen said an increase in interest rates is very much in the cards this year, which is expected to strengthen the U.S. dollar and depress gold as it is priced in the currency.
Gold’s fall has been exacerbated by a slide in China’s stock market, as few people have the cash to buy the yellow metal. 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. Prices are unlikely to rise above $1,150 an ounce soon.
Analysts expect a bounce back in gold only after the Federal Reserve announces an increase in interest rates as that will remove some of the uncertainty surrounding the precious metal at the moment.
While some analysts suggested gold prices had hit a floor with Monday’s decline, others see further downside to about $1,050 a troy ounce in the near term.
Usually, such a steep fall would trigger retail gold buying in China and India, which together account for half of the global demand, but Indian demand has been subdued due to a seasonal lull coinciding with crop planting season.
Other metals prices also declined Monday. Silver, often considered a cheaper alternative to gold, has been beaten down and traded 0.3% lower, while platinum and palladium declined 1.8% and 1.5%, respectively.