Gold slide halted but analysts warn of worse to come
Source: www.chinamining.org Citation: www.chinadaily.com.cn Date: July 23, 2015
Gold stabilized on Tuesday after falling to its lowest level in more than five years as it hit a sixth day of declines on Monday.
Bullion for immediate delivery added as much as 1.06 percent to $1,108.09 an ounce on Tuesday and traded at $1,106.8 at 11 pm in Hong Kong, holding just above a five-year low. The precious metal had tumbled to $1,086.18 a day earlier, breaching the key psychological barrier of $1,100 an ounce.
Gold has been falling out of favor as the US dollar strengthened last week after US Federal Reserve (Fed) Chair Janet Yellen have reiterated that the US central bank was on track to raise rates later this year, said Kenix Lai, senior market analyst for currencies and interest rate trading at Bank of East Asia.
In Shanghai, around five tons of the metal were sold on the gold exchange within two minutes on Monday, in a market where the normal volume traded is 25 tons for the entire day, Australia and New Zealand Banking Group said in a note.
The sudden bout of selling across the Shanghai and New York markets on Monday and the rebound on Tuesday, Lai pointed out, had nothing to do with fundamentals.
As gold has generally been suppressed by the ongoing expectations of a stronger US dollar, as well as sluggish demand from the Chinese mainland and India, the world`s largest consumers of the metal, Lai believes the recent price slump could signal a "plunge in a volatile fashion" to $1,000 an ounce at the year-end.
"Despite today`s short-lived recovery, I think so far the good time to invest in gold has yet to arrive," noted Lai. "There is still going to be downward pressure. Price could head lower and is unlikely to rebound until the second half of next year."
Gold is seen as a safe investment and a store of value during times of economic uncertainty and high inflation. As inflation is heading nowhere and the promise of a third Greek bailout gives investors more confidence in the euro and the European economy, their desire for gold as a safe haven is fading, Lai told China Daily.
Lai`s views matched those of Christ Fund Securities research director Simon Lam Ka-hang, who is still bearish on gold and looking at $1,000 an ounce in the first quarter of next year. And his outlook is underpinned by the likely US Fed rate hike.
Meanwhile, Hong Kong jewelry retailers struggling with their weak performance in gold sales have their hopes pinned on the sliding price of the precious metal to boost sales.
Sales at Chow Tai Fook, the world`s biggest listed jeweler, fell 17 percent on-year in the three months to June 30, largely driven by a 12-percent decline in sales of gold products.
During the period, same-store sales of gold products in Hong Kong and Macao, where Chow Tai Fook stores were once a mecca for gold buyers, tumbled 25 percent.
Hong Kong-based jeweler Luk Fook Holdings also posted a 20-percent plunge in same-store gold sales in the two SARs for the quarter ended June 30, with the group`s overall same-store sales of gold products declining 18 percent during the period.
This came as the SAR in June saw a steep 10-percent drop in mainland visitors under the Individual Visit Scheme, following a 5-percent drop in arrivals in May. As mainland buyers are the major power behind gold purchases in Hong Kong, Lai said she could hardly expect a gold rush at the city`s jewelry stores.
Other commodities also advanced on Tuesday, with spot silver gaining 1.4 percent to $14.9115 an ounce, after declining as much as 2.3 percent on Monday. Platinum rose 1.16 percent to $989.4 an ounce after dropping on Monday to its lowest level since 2009.
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