Yellow metal prices decline as investors unload holdings

Customers buy gold jewelry at a shopping center in Xuchang, Henan province. China's central bank said on Friday that its bullion reserves have increased 57 percent to 1,658 metric tons since 2009. [Photo/China Daily]

Precious metals were routed as gold sank to the lowest in more than five years amid prospects for higher United States rates and after China said it held less metal in reserves than some analysts expected.

Platinum plunged to the lowest since 2009, while silver and palladium lost more than 2 percent.

Gold has fallen out of favor with investors as US Federal Reserve Chair Janet Yellen prepares to raise rates this year, boosting the dollar. While China updated its bullion reserves on Friday for the first time since 2009, the 57 percent increase to 1,658 metric tons was smaller than had been estimated. Gold's plunge increases the prospect of a third annual decline.

Bullion for immediate delivery tumbled as much as 4.2 percent to $1,086.18 an ounce, the lowest price since March 2010. Miners' shares retreated in Sydney and Hong Kong.

"Gold has generally been suppressed by the ongoing expectation that the dollar may get stronger should the Fed raise interest rates," Wallace Ng, a trader at Gemsha Metals Co, said from Shanghai. "But this sudden drop during Asian trading seemed to have been triggered by some stop-loss sell-offs that have nothing to do with fundamentals."

Newcrest Mining Ltd, Australia's largest producer, lost 8.8 percent to A$12.04 ($8.87) in Sydney, while Evolution Mining Ltd slumped 14 percent. In Hong Kong, Zijin Mining Group Co lost 7.6 percent.

"The market is in one of its bear phases, where any news is bearish news," said David Baker, Sydney-based managing partner at Baker Steel Capital Managers LLP, predicting that gold may drop to as low as $1,050 an ounce. "People had expected China's holdings to be higher," said Baker, who manages about $150 million, and holds shares in gold miners.

Some investors are turning away from precious metals amid a wider retreat in raw materials. The Bloomberg Commodity Index dropped for a fifth day on Monday to as low as 96.6279, heading for the longest run of declines since March.

China bought about 604 tons of gold since 2009, second only to Russia, according to data from the People's Bank of China, or the central bank, and the International Monetary Fund. The total holdings make China, the world's biggest producer and fifth-biggest gold owner.

Prospects for a US rate hike strengthened the dollar, hurting the allure of gold, which offers returns only through price gains. The Bloomberg Dollar Spot Index rose as much as 0.2 percent to the highest level since April 13.

"I'm still bearish on gold," said Barnabas Gan, an economist at Singapore-based Oversea-Chinese Banking Corp, the most accurate precious metals forecaster in the eight quarters to March, according to Bloomberg rankings. "For the year-end, I'm still looking at $1,050 an ounce. The bearish outlook is underpinned by the likelihood of the US Fed rate hike."

Holdings in gold-backed exchange-traded products have shrunk as US equities rallied and the dollar climbed. Global holdings were at 1,585.96 tons on Thursday, down from a record 2,632.5 tons in December 2012.

Gold futures retreated 4.6 percent to $1,080 an ounce and traded at $1,106.60 on the Comex in New York. Money managers are holding the smallest net-bullish bet on gold since the US government data begins in 2006.