LONDON — Gold slumped Monday to the lowest point in nearly five and a half years, weighed down by reports of massive selling in China, dealers said. The precious metal tumbled to $1,072.35 in Asian deals, striking the lowest point since February 11, 2010, and breaching the key psychological barrier of $1,100.
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 percent at $1,113.80 an ounce by 1002 GMT.
Spot platinum fell for the fifth straight session, down 5 percent at a fresh 6-1/2-year low of $942.49 an ounce, due to oversupply, sluggish demand and weaker gold prices, which encouraged speculative selling.
“The Asian market missed the action on Friday when US players were already attempting a break of $1,130, a major support level, and has pushed prices much lower today,” ABN Amro analyst Georgette Boele said.
“Last week was an important week: you got Yellen, a three-month high in the dollar and good US economic data ... there is a chance that we see more downside in coming days.”
More than 3 million lots traded on a key contract on the Shanghai Gold Exchange, compared to fewer than 27,000 lots on Friday, Reuters data showed. Before Monday, the volume for July had averaged at fewer than 30,000 lots.
Traders said it appeared that sellers had taken advantage of a low-liquidity environment, with Japanese markets shut for a public holiday, fueling speculative selling.
“The break of the critical $1,130 support level now makes the technical picture look very weak,” ANZ said. “Short-term supports sit at $1,085 and $1,050, while topside resistance at $1,130 looks pretty solid.” China said on Friday its gold reserves were up 57 percent at 1,658 tons 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 tons per year, which is dramatically lower than market expectations,” Citigroup said in a note.
Gold fell more than 1 percent on Friday, pressured by increased bets on a Federal Reserve rate rise this year, which would increase the opportunity cost of holding the metal.
“The price slide was triggered by high selling volumes on the gold exchange in Shanghai,” said Commerzbank analysts in a research note to clients.
Dealer Nick Rose, at trading firm TradeNext, agreed that the latest price slump was sparked by Chinese sellers offloading large quantities of the metal.
Gold had already slid on Friday on the back of the strong dollar, which soared last week after US Federal Reserve chief Janet Yellen reaffirmed expectations of an interest rate hike by year-end.
A stronger greenback makes dollar-denominated commodities more expensive for buyers using weaker currencies. That tends to dent demand and, in turn, pull prices lower.
Prices were hit Friday by news that China's official gold reserves rose almost 60 percent over the past six years, according to the first official data on the subject since 2009.
The central People's Bank of China (PBoC) said bullion holdings rose 57 percent to 1,658 tons as of the end of June, from 1,054 tons in April 2009, the last time a figure was released.
“Markets have commenced the week with an unexpected start following a spectacular drop in gold during the Asian session that sent the yellow metal to a new milestone five-year low,” added analyst Jameel Ahmad at traders FXTM on Monday.
“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.”
Other precious metals also forged multi-year lows on Monday.
Silver dived to $14.54 per ounce, the lowest level in nearly six years. Platinum sank to a six-year trough at $946.25 an ounce, while sister metal palladium slid to $603.95 per ounce – last witnessed on November 11, 2012. — Agencies
