Gold prices plunge to 5-year low on Chinese sell-off and US rate hike hopes

Gold prices declined to a fresh-five year low on 20 July amid a selling spree in China and expectations of an increase in US interest rates, which can turn investors away from bullion.

Gold prices fell to as low as $1,088.05 (£1,004.51, €696.9) an ounce on the day – the weakest level since March 2010. Prices later recovered and bullion was trading at $1,114.60 per ounce on Comex as at 9.09 am GMT, still down 1.53%.

"In our view, today's price action does not seem to be driven by fundamentals," said Victor Thianpiriya, commodity strategist at ANZ Bank.

"The nature, size and timing of the heavy selling suggests a market participant was taking advantage of low liquidity or some sort of forced selling had taken place."

He noted that the break of the critical $1,130 support level now makes the technical picture look very weak. There were other indicators that suggested that the likelihood of an immediate rebound was low.

Gold has breached the key support level as the dollar gained following Federal Reserve Chair Janet Yellen's comment that the central bank is on course to raise interest rates if the US economy continues to expand.

Both the Shanghai Gold Exchange (SGE) and Comex sold off heavy volumes. In Shanghai, close to five tonnes of gold was sold in a two-minute window just prior to 9:30 am, in a market where the normal volume traded is 25 tonnes in an entire day. China is one of the largest markets for gold.

Meanwhile, the 15 August Comex gold contract also saw 7,600 contracts being traded in the same two-minute window, though intraday trading data showed an unusual spike in Comex volume just before Shanghai, suggesting Comex gold led the selloff.

The downward spiral follows a decline in gold price on 17 July by $15 per ounce, expected to have been triggered by higher exchange traded fund (ETF) outflows.

The SPDR gold trust reported outflows of more than 11 tonnes on 17 July, the largest single-day outflow since 2014. An increase in ETF outflows was one of the major catalysts for the price selloff in 2013, Thianpiriya noted.

Among other precious metals, silver was trading down 0.33% at $14.79 per ounce, while platinum and palladium lost 0.96% and 0.83%, respectively.