Gold rout: Five reasons behind its fall

Here's looking at five reasons behind the decline in gold prices.

Gold rout: Five reasons behind its fall

Zee Media Bureau

New Delhi: Gold has fallen for a seventh session in eight, reflecting sustained downward pressure on the metal days after its steepest drop in almost two years, with more losses seen ahead as the demand outlook dims.

Holdings of SPDR Gold Trust , the world`s largest gold-backed exchange-traded fund, fell further to 22.17 million ounces on Tuesday, the lowest since August 2008.

Bullion, after sliding on Monday by the most since September 2013, is trading just above the critical $1,100 an ounce support level, another breach of which could lead to a further selloff, traders and analysts say.

Here's looking at five reasons behind the decline in gold prices.

1. Gold prices plunged as much as 4 percent to their lowest in more than five years on Monday as sellers in top consumer China offloaded the metal. China has dumped a huge amount of gold on the market resulting in the sharp decline in the yellow metal. Gold was also hit by news that China`s official gold reserves rose almost 60 percent over the past six years, according to the first official data on the subject since 2009.

2. A looming increase in US interest rates has been a key driver in gold`s descent along with sluggish demand in top consumers China and India.

3. Investors have been finding less and less reason to hold gold as an insurance against risk, with the dollar strengthening ahead of what is expected to be the first increase in US interest rates for nearly a decade. The dollar hit a three-month high against a basket of currencies, making dollar-priced gold more expensive for holders of other currencies.

4. Sellers seemed to have taken advantage of a low-liquidity environment, with Japanese markets shut for a public holiday, fuelling speculative selling.

5. Investors continued to shun precious metals and invest in the dollar as their preferred sanctuary from volatile markets. Added to it, geopolitical developments following Greek debt deal and Iran nuclear agreement too weighed on bullion rate.

With Agency Inputs