Gold futures plunged more than 2% on Monday to hit its lowest level since Feb. 2010
Investing.com -- Gold futures crashed below $1,100 an ounce plummeting to a five-year low amid a sell-off in Asian markets, before paring some of the gains in U.S. afternoon trading.
On the Comex division of the New York Mercantile Exchange, gold for August delivery plunged to $1,087.40, its lowest level since February, 2010 before rallying somewhat hours later. The precious metal settled at 1,107.30 an ounce, down 24.50 or 2.17%. Monday's nosedive is a continuance of gold's rapid decline over the last several weeks. Since peaking above $1,200 on June 18, gold futures are down approximately 8%.
Gold plunged more than 5% in mere minutes during early morning Asian trade when it fell below $1,120, triggering a fresh batch of sell orders. Over the weekend, the Chinese government tightened regulations on internet financing in further efforts to bolster its crashing equities markets. In recent weeks, Chinese investors have lost approximately $3 trillion in the stock market amid the slowest growth in the world's second-largest economy in over a decade.
While the People's Bank of China has looked to jumpstart equities by cutting its benchmark interest rate, easing regulations on margin trading and lowering the amounts Chinese banks must hold on reserves, the stimulus measures have only temporarily slowed the massive rout. China is the world's largest producer of gold and the second-largest consumer behind India.
On Friday, strong U.S. inflation data bolstered the case for a 2015 interest rate hike by the Federal Reserve. In a monthly report, the U.S. Department of Labor's Bureau of Labor Statistics said its Consumer Price Index (CPI) for June rose by 0.3% on a monthly basis, in line with consensus estimates. On a year-over-year basis, the CPI gained 0.1% above analysts' forecasts for a flat reading. A reading of Core CPI, which strips out food and energy prices, provided even more optimism for the hawks at the Fed in favor of a September rate hike. The core reading, which the Fed believes provides a more accurate gauge of inflation, rose 0.2% from May and 1.8% over the last 12 months. The U.S. central bank would like to see inflation move toward its targeted goal of 2% over a long-term basis before it raises its benchmark Federal Funds Rate for the first time in nearly a decade.
Earlier last week, Fed chair Janet Yellen reiterated that conditions in the economy are likely to justify an interest rate hike at some point this year.
Gold, which is not attached to interest rates or dividends, struggles to compete with high-yield bearing assets in periods of rising interest rates.
Elsewhere, banks throughout Greece reopened on Monday after more than two weeks of closures. In addition, the cash-strapped nation repaid a €4.2 billion obligation to the European Central Bank days after receiving more than €7 billion in bridge funding from its euro zone creditors. The declining probability of a Greek exit from the euro, weighs on gold which is viewed as a safe-haven for investors.
Silver for September delivery fell 0.037 or 0.25% to 14.797 an ounce.
Copper for September delivery dipped 0.014 or 0.57% to 2.481 a pound.