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Gold sank further into bear-market territory on Monday as prices dropped to a two-year trough on fears of central bank sales and less monetary stimulus, while holdings on global exchange-traded funds hit their lowest in more than a year.
Along with gold, investors ditched other commodities from oil to copper after a less-than-forecast growth in China's gross domestic product in the first quarter stoked doubts about the health of the global economy.
Gold hit an intraday high at $1,495.16 an ounce, but then plunged to $1,427.14, its lowest since April 2011. It stood at $1,452.50 by 0709 GMT, down $25.85.
Having fallen nearly 7% over two sessions, gold is on course for its biggest two-day drop since September 2011."Breaking $1,500 is not a good sign for gold. We don't know what the next support level is going to be," said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong."Even though there are some shorts in the market, I think people still want to push the price down. There's no excuse to push it up, unless there's a war between North and South Korea. There should be a rebound as the market is already oversold."
U.S. futures for June delivery extended losses to fall more than 5 percent as Tokyo gold futures tumbled around 8%, marking Japanese futures biggest daily fall since September 2011."I am sure we will see much higher prices after the correction. We broke $1,530 after sell orders on COMEX were triggered," said Domenic Parli, a physical dealer at Hong Kong-based Fine Metal Asia."This morning in Asia, we had the reaction to what happened on Friday," said Parli, adding that physical buyers could take advantage of the price drop.
Other precious metals were also hit by heavy selling, with silver falling to its lowest since November 2010, platinum at its weakest since August last year, and palladium hitting a three-month low.
Although jewellers could snatch the opportunity to stock up, a meagre increase in premiums for gold bars suggested that consumers were buying time. Gold slipped into a bear market last week after plunging more than 5% on Friday to below $1,500 for the first time since July 2011.
Premiums for gold bars ticked up to $1.50 to the spot London prices in Singapore, versus $1.20 last week."I think jewellers are the happiest lot, but wholesellers will stay on the sidelines at the moment. It's human nature. When the price crashes like this, they will tend to wait for it to go even lower," a dealer in Singapore said.
Investors cut exposure
Investors cut exposure to gold, with total holdings at the world's major bullion gold-backed exchange-traded-funds falling to their lowest since early 2012.
Investors have recently been dumping gold, which has dropped for the past three straight weeks, and flocking to equity markets for better returns. Even escalating tensions on the Korean peninsula have failed to burnish its safe-haven appeal.
North Korea prepared for the annual celebration of its founder's birth on Monday, having rejected talks with South Korea aimed at reducing tensions and reopening a joint industrial park between the two countries.
Another factor weighing on the precious metal is Cyprus' plan to sell gold reserves to raise around 400 million euros. That has raised concerns other indebted euro zone countries could follow suit, while signs of a tentative recovery in United States could further dent gold's appeal. "What we now see is panic selling, perhaps triggered by the Fed's stimulus view. The Fed has given the signal that there's a possibility to reduce QE and that took a lot of trust out of gold," said Dominic Schnider, analyst at UBS Wealth Management. "As the Fed becomes less reflationary and ECB not willing to end its deflationary policy, the balance towards inflation is shifting dramatically. And people recognise that in an environment where you have no inflation is a powerful driver to get out of the metal."
While policy doves currently hold sway over Chairman Ben Bernanke and the majority of Fed policymakers, minutes from last month's policy meeting suggest the quantitative easing programme could draw to a close by year end, earlier than some economists had expected.
