Gold hits four-year low

November 3, 2014

Sydney-Australia (Nov 3)  The price of gold has slumped sharply over the past week, as the US Federal Reserve finished its quantitative easing program, the Bank of Japan stepped up its own, and the US dollar strengthened.

Gold has lost ground for four-straight sessions, culminating in Friday's fall of up to 3.1 per cent to a four-year low of $US1161.75 an ounce. On Monday, the precious metal was down 0.3 per cent at $US1169.20 in late Asian trade.

In contrast, the US dollar spot index – measuring the greenback's value against a basket of major currencies – has jumped 2.2 per cent over the past four trading sessions.

Gold still remains highly correlated to the US dollar and the Bank of Japan's unexpected move to expand its yearly asset purchases by trillions of yen has only exacerbated that, Australia and New Zealand Banking Group commodity analyst Victor Thianpiriya said.

However, there is a key difference to gold's slump and the US dollar's rise in 2014 when compared to last year.

"The US dollar was still strengthening last year as well, everyone was getting optimistic, bulled up positive on the US and that was driving down the price of gold, but the demand response we got from the Chinese last year on the physical side really stopped gold from going lower than it did and we really saw some strong bounces in the gold price when it got sold off," he said.

"That hasn't happened this year, we've seen particularly over the last few weeks that Chinese onshore gold demand has weakened significantly this year compared to last year and I think that's a result from a bit of a hangover from the gold binge last year from the Chinese."

With physical demand weak and gold ETFs [exchange-traded funds] being sold off, it's hard to imagine any strong bounce in the yellow metal's price, Mr Thianpiriya said, however, 2015 may see a slow recovery.

"For the moment, we're still quite comfortable with our outlook for 2015 which is $US1180 for the end of this year and a bit of a gradual recovery back through the $US1200s for most of 2015," Mr Thianpiriya said.

There is a lot of optimism priced into the US dollar at the moment and once the US central bank begins to raise rates, presumably some time next year, a stabilising greenback will be positive for gold prices, Mr Thianpiriya said.

The US dollar is only one side of the story, UBS commodity analyst Jo Battershill said.

"We've seen a lot of physical movement of gold from west to east, at some point, do those aspects of the fundamentals come into play?" Mr Battershill said.

"It's almost like the paper markets in the US are looking at what's going on in the ETF and what's going on with the US dollar, but not looking at the other side of the equation. Clearly, it's being sold out of ETFs but it's being bought by someone."


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