Gold sank to its lowest level in five years after heavy selling in early Asian trading hours dumped more than a billion dollars’ worth of the precious metal on the market in a matter of minutes, in a sign that funds were aggressively targeting the bullion as its outlook deteriorated.
The price fell to $1,088 a troy ounce — a level last seen in March 2010 — after a flurry of selling on a US futures platform and the Shanghai Gold Exchange sparked talk of a another concerted raid in metals markets by Chinese hedge funds.
Gold, which has a centuries-old reputation as a store of value in times of crisis, has failed to find support this year from either the eurozone debt crisis or the rout in China’s stock market.
Instead it has been buffeted by a strengthening US dollar and expectations that the US Federal Reserve will raise interest rates this year.
Almost 50 per cent of the gains the metal made during its 12-year bull run have been given up. Between 1999 and 2011 prices rose from about $250 a troy ounce to more than $1,920.
Monday’s selling came after China’s central bank revealed late last week that it had made much smaller purchases of gold reserves than the market had estimated, adding just 600 tonnes of gold since 2009.
The news dealt another blow to the so-called gold bugs that have flocked to the metal during the past decade.
Ivan Szpakowski, analyst at Citi, said market expectations for China’s purchases had been almost triple that amount.
Traders and analysts said, however, that the nature and timing of the selling suggested there was more at play than investors responding to a slight strengthening in the US dollar or lower central bank purchases.
“There is to my mind no coincidence that this happened in the quietest, thinnest period of the week,” said David Govett, head of precious metals at Marex Spectron in London.
“Anyone who trades gold knows not to put any volume into the market at this time, unless they deliberately want to move it in a big way.”
The sell-off follows large redemptions from a leading exchange-traded gold fund. On Friday the SPDR — the largest gold ETF — reported outflows of 11 tonnes, the biggest one-day outflow in a year.
