Yesterday gold prices plunged to their lowest in more than five years, at one point falling 4 percent on aggressive selling out of China. On the other side of the coin, the US dollar hit a three-month high on expectations for higher US interest rates. Equity markets posted small gains, while focus remained on earnings season. This dramatic gold sell-of came about in Shanghai in a remarkably short time; roughly $1.3 billion in gold was traded in just two minutes.
The exact reason for this mass selling remains unclear. Recent strength in the US currency, in addition to expectations for higher US rates, have undermined the case for holding gold and other precious metals. Analysts have also noted that China imported a record volume of gold in 2013, creating an oversupply situation in the process. Nonetheless, the unnatural speed of this decline proved a shock to traders, resulting in two separate trade halts in US gold futures. The spot price for gold XAU= was $1,094.5 an ounce, after hitting a low of $1,088.50 overnight.
According to Societe Generale analyst Robin Bhar, we have breached significant support levels, and know that US rate hikes are coming, while there is no inflation nor catalyst to hold gold when other markets are doing better. And gold isn’t the only commodity that’s been sinking; US crude oil fell 93 cents to $49.96, the first time it’s been below $50 since April. And Brent crude was last down 59 cents a barrel at $56.51. The dollar might have jumped to its highest since April 23 against a basket of major currencies, but was then flat on the day. The greenback ended up posting its best weekly performance in about two months last week after Federal Reserve Chair Janet Yellen emphasized that US interest rates will most likely rise later in the year.
Global equity markets held close to last Friday’s three-week highs, and European shares approached seven-week peaks as fears over the situation in Greece have continued to recede; the country’s banks reopened for the first time in three weeks in the aftermath of a deal to start talks on a new bailout. This caused the pan-European FTSEurofirst 300 index to rise .3 percent to its highest since late May.
Across the ocean on Wall Street, the Dow Jones industrial average rose 13.96 points (.08 percent) to 18,100.41, the S&P 500 gained 1.64 points (.08 percent) to 2,128.28 and the Nasdaq Composite added 8.72 points (.17 percent) to 5,218.86. The euro fell to its lowest since May on the EBS trading platform, but last traded up .06 percent at $1.0838. The yen dropped .2 percent to 124.38 to the dollar. The yield on the 10-year US Treasury bond rose 2.377 percent, as the price fell 6/32 of a point.