The dollar is coming off its best week in two months after Federal Reserve chair Janet Yellen reaffirmed the outlook for rate hikes this year in the United States and as concern over Greece and China’s stock rout receded. While China updated its bullion reserves on Friday for the first time since 2009, the 57 per cent increase to 1,658 metric tons was smaller than had been expected.
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The move follows a sharp drop in gold prices in USA trading on Friday, when gold settled at its lowest in more than five years on Comex. Silver, often considered a cheaper alternative to gold, has been beaten down and traded 2% lower, while platinum and palladium declined 3.1% and 2.5%, respectively. Higher bond yields and a resurgent US dollar diminish the appeal of gold, which produces no income and costs money to hold.
Bloomberg reported that China’s gold purchases since 2009 were second only to those of Russian Federation, citing figures from the worldwide Monetary Fund. The country now ranks fifth globally in gold holdings.
“Gold has generally been suppressed by the ongoing expectation that the dollar may get stronger should the US Fed raise interest rates”, Wallace Ng, a trader at Gemsha Metals Co., said from Shanghai. The drop was exacerbated by the triggering of stop-loss orders, which are trades arranged to limit a trader’s loss on an investment as the price falls. In Hong Kong, Zijin Mining Group Co. lost 7.6pc.
“Also, rising risk appetite is pushing up equities and adding to the pressure on gold prices”.
Some investors are turning away from precious metals amid a wider retreat in raw materials.
Narne said India had higher import duties, in an effort to contain its current account deficit, and due to this, the domestic gold market had enjoyed a premium over worldwide prices over the last few years. The greenback was steady at US$1.0825 per euro after climbing the most since May versus the common currency last week.
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“Any increase in USA interest rates should further strengthen the dollar, prompting more fund outflows from commodities, metals and emerging-market assets”, said Vattana Vongseenin, the chief executive of Phillip Asset Management Co in Bangkok.
