Bullion takes a battering
GOlD crashed to a five-year low yesterday as the prospect of higher interest rates in the united States sent commodity prices tumbling.
the price of the precious metal fell 4pc to as low as $1088 an ounce – a level not seen since March 2010 – taking losses since its peak of $1920 in 2011 to 43pc.
Bullion clawed back some of its losses in later trading but it was not enough to prevent a sixth day of decline in a row.
‘It looks like the end of an era for gold,’ said Howie lee, an analyst at Phillip Securities in Singapore.
the dramatic slide in the value of gold – which has been on the back foot for much of the past four years – came as 33 tonnes of the metal were dumped on the market in Shanghai overnight.
Other metals were caught in the sell- off including platinum, silver and copper and the Bloomberg Commodity Index fell for a fifth straight day to its lowest level since June 2002. the rout took its toll on gold miners listed in london with rangold resources and fresnillo the biggest fallers on the ftSe 100 index, down nearly 5pc.
Among the mid-caps, Acacia Minerals plunged 15pc and Centamin was nearly 9pc lower.
At the same time, the dollar rose to its highest level since April as the prospect of higher interest rates in the uS attracted investors in search of better returns.
federal reserve chairman Janet Yellen last week said the central bank was on course to raise interest rates ‘at some point this year’.
Bank of england Governor Mark Carney also hinted that rates in Britain could rise ‘around the turn of this year’.
Investors traditionally turn to gold in times of crisis and it enjoyed a dramatic 12-year bull-run from 1999. that was the year the then chancellor Gordon Brown sold half of Britain’s gold reserves f or between $256 and £296 an ounce.
this 20-year low in the market is now known by gold traders as ‘Brown’s bottom’.
the precious metal is now under pressure, however, as both the fed and the Bank of england edge towards raising interest rates for the first time since before the financial crisis struck.
the prospect of higher interest rates has taken the shine off gold because the metal does not pay interest or dividend income – unlike bonds and equities.
Demand has also been dented by the economic slowdown in China, the world’s biggest consumer of gold, and the rise in the dollar which has made gold more expensive for foreign buyers.
Beijing said on friday that its gold reserves have grown 57pc in the last six years – but this was far l ess than expected. Gold now accounts for 1.65pc of China’s total foreign reserves compared with 1.8pc in 2009.
Meanwhile, the deal to keep Greece in the eurozone – at least for now – has calmed the nerves of investors and encouraged them to switch out of the safest assets such as gold.
evan lucas, a market strategist at City trading firm IG, said gold could fall to $1000 an ounce by the end of the year. ‘there are no clear signs or reason to buy it,’ he said. ‘Investment in the uS dollar and bonds is clearly more appealing.’
the views were echoed elsewhere in the world.
Kishore Narne, associate director at Motilal Oswal Commodities in India, said: ‘Gold has become unattractive as an asset class due to rising interest rates.
‘ Moreover, the risk tolerance among global investors is currently high. the scenario looks bearish and is likely to stay this way for at least eight months.’