Gold rebounds from five-year low

Gold bounced back from a five-year low on Tuesday, advancing for the first time in seven sessions amid declines in the dollar and speculation that Monday's plunge was excessive.

Gold has fallen about 7 per cent this year on expectations that the Federal Reserve will raise interest rates, curbing demand for bullion that generally offers returns only through price gains.

Despite the uptick, more losses expected in the coming months following Monday’s “bear raid” when sellers dumped an estimated 33 tonnes in just two minutes.

The sudden bout of selling in Shanghai and New York occurred during illiquid trading hours, with a wave of orders placed during a one-minute period shortly after the Shanghai Gold Exchange opened on Monday.

Within a further minute, the deals had been completed, sending the most-active US gold futures contract down $48 to as low as $1,080.00 per ounce, its weakest since February 2010.

Investors

Investors have found less and less reason to hold gold as a safe haven following the international financial crisis, with the dollar strengthening before what is expected to be the first rate increase by the US Federal Reserve in nearly a decade.

“At these levels we don’t think gold is being considered cheap,” Deutsche Bank analyst Michael Lewis said. “That’s why we wouldn’t be saying to people this is their opportunity to buy because we have no real fundamental justification for gold to go up, given the imminent Fed rate hike and potential for more dollar strength.” – (Reuters/Bloomberg)