Gold Continues Sliding, Hits 5-Year Low

By Biman Mukherji 

        HONG KONG--Gold prices continued falling Monday, hitting a more than five-year low in Asia trade, amid growing expectations for an increase in U.S. interest rates 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.
        Gold traded down 2.3%, or $25.60, at $1,106.30 a troy ounce, a level last seen in early 2010. Earlier in the session, gold dropped below $1,100.
        "This kind of sharp drop during early Asian hours is a strong indication that a big fund is selling their holdings of gold," said Gnanasekar Thiagarajan, director of Commtrendz Risk Management.
        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.
        "If people would have seen higher gold demand from China, it would have helped prices," said Ryan Case, head of institutional sales at Bullion Capital, a physical bullion exchange based out of Australia.
        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 decadelong rally that ended in 2011.
        "Wherever you look, there is no reason to buy gold," said Howie Lee, a Singapore-based analyst at Phillip Futures. "I don't see any recovery in gold prices at this stage."
        Prices are unlikely to rise above $1,150 an ounce soon, he said.
        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 2% lower, while platinum and palladium declined 3.1% and 2.5%, respectively.
        Write to Biman Mukherji at biman.mukherji@wsj.com
        (END) Dow Jones Newswires

        July 20, 2015 01:54 ET (05:54 GMT)

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