China’s investors are ditching gold and the selling spree has pushed gold prices down four percent, marking the lowest purchase price in more than five years. The US dollar has continued to strengthen and investors are seeing less reason to hold goal as an insurance against risk.
Spot gold XAU declined to $45.55, its weakest since March 2010 at $1,088.05 an ounce shortly after the Shanghai Gold Exchange opened, with volumes soaring to a record. The product regained some ground, trading at just above the key $1,100 support level. By 1355 GMT the product was down 2.2 percent to $1,108.18 an ounce.
Spot platinum XPT fell for the fifth straight session, down 5 percent to a fresh 6-1/2-year low of $942.49 an ounce. That material has been hit with oversupply, sluggish demand and weaker gold prices, which encouraged speculative selling.
Societe Generale analyst Robin Bhar told Reuters, “Illiquidity was important in the Asian overnight move, with Japan and other countries on holiday … it was just a bit of a bear raid and there was nobody on the other side to mop up the selling… We have breached significant support levels, we know U.S. rate hikes are coming, there is no inflation and there is no catalyst to hold gold when other markets are doing better.”
Gold fell more than 1 percent on Friday, pressured by the likely increase of a Federal Reserve rate rise this year, which would increase the opportunity cost of holding the metal.
On Friday 27,000 lots traded on a key contract XAU9999=SGEX on the Shanghai Gold Exchange, compared to more than 3 million on Monday. The July lot trade had averaged fewer than 30,000.
“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.”
In other news, the dollar hit a three-month high against a basket of currencies, which in turn made dollar-priced gold more expensive for holders of other currencies.
On Friday China said 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.
“This implies stockpiling of around 100 tonnes per year, which is dramatically lower than market expectations,” Citigroup said in a note.