Gold plunged 4 per cent to its lowest in more than five
years on Monday with platinum also sinking 5 per cent to its weakest since 2009
as investors sold the precious metals on the outlook for the US dollar.
It was a sudden, massive drop for gold and platinum prices
as they breached critical support levels as the dollar strengthened on growing
expectations that the US Federal Reserve will hike interest rates this year.
"It looks like someone was taking advantage of the low
liquidity environment at the moment. It's a bit of speculative selling going
on," said Victor Thianpiriya, analyst at ANZ Bank in Singapore.
Nearly 900,000 lots were traded on a key contract on the
Shanghai Gold Exchange, compared to less than 27,000 lots on Friday, Reuters
data showed. Prior to Monday, volume for July had averaged less than 30,000
lots.
"The market looks very technically weak and the biggest
buyer of all, China, is now selling gold as opposed to buying it on price dips.
That's a recipe for weaker prices," said Thianpiriya.
China said on Friday its gold reserves were up 57 per cent
at the end of June from the last time it adjusted its reserve figures more than
six years ago. Despite the tonnage increase, gold now accounts for 1.65 percent
of China's total forex reserves, against 1.8 percent in June 2009.
Spot gold was down 2.4 per cent at $1,106.90 an ounce by
0302 GMT after falling as far as $1,088.05, its lowest since March 2010.
Gold has breached key support levels as the dollar gained
after Federal Reserve Chair Janet Yellen told Congress last week that the Fed
is on course to raise interest rates if the US economy expands as expected.
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