Why today's gold price is down is linked to several factors, starting with the aftermath of the gold "flash crash" that occurred late Sunday night...
Around 9:30 p.m. ET - or just as China's market opened for trading - a seller dumped five tonnes ($2.7 billion worth) of gold on the Chinese market. That's the equivalent of one-fifth of a whole day's trade in a normal session. Gold promptly fell 4.2% to a five-year low of $1,085 an ounce in a matter of seconds. In a whiplash-like move, the gold price quickly spiked back above $1,100.
"This kind of sharp drop during early Asian hours is a strong indication that a big fund is selling their holdings of gold," Gnanasekar Thiagarajan, director of Commtrendz Risk Management, told The Wall Street Journal.
Victor Thianpiriya, commodity strategist at ANZ, shared a similar sentiment.
"In our view, today's price action doesn't seem to be driven by fundamentals," Thianpiriya said in a report. "The nature, size, and timing of the heavy selling suggests a market participant was taking advantage of low liquidity or some sort of forced selling had taken place."
On Monday, the yellow metal initially rebounded. Right after the opening bell on Wall Street, gold prices climbed $21.40, or 1.89%, to $1,117 an ounce. But the gain wouldn't last -- the metal closed at $1,103.60.
Here are other factors weighing into why today's gold price is down, two days after the flash crash...
Why Today's Gold Price Is Down: China, Greece, and the U.S. Dollar
China: China's central bank reported Friday that its gold reserves total 53 million ounces. While up 57% since 2009 -- the last time the People's Bank of China made its reserve tally public -- major gold market participants had anticipated a much larger stockpile. Thus, the release from the world's second-largest consumer of gold was a bearish sign for precious metal traders.
Greece: Banks in the ailing Mediterranean country opened their doors Monday for the first time in over three weeks. Still, limited services and cash controls remain in place. In the months leading up to the banks' closures, along with mounting worries that Greece would leave the Eurozone, panic buying for gold bullion and coins occurred among Greeks. That buying looks to ebb as citizens now have access to cash, and Greece appears committed to remaining a Eurozone member.
The Mighty U.S. Dollar: With expectations for the first U.S. interest rate hike in more than nine years growing stronger, the U.S. dollar continues to climb against other global currencies. Last week, U.S. Federal Reserve Chair Janet Yellen gave her strongest signal to date that U.S. interest rates will start heading higher, possibly before the end of the year. Yellen's comments unleashed a fresh flood of selling in gold and other commodities. Most commodities are priced in dollars, making them more expensive for buyers abroad when the greenback's value gains. Over the last 12 months, The Wall Street Journal's U.S. Dollar Index has advanced 22%.
The gold price plunge, while painful for investors, has stoked demand in the world's top importing nation...
Why Today's Gold Price Is Down: Indian Demand
Interest for gold in India, the world's largest consumer, jumped 15% in Q1 2015 amid relaxed import restrictions and a decline in prices.
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Gold demand rose to 192 tons in the January to March period, up from 167.1 tons a year earlier, according to the World Gold Council (WGC). Gold imports during the quarter, meanwhile, increased 28% to 226.9 tons.
The WGC forecasts India's gold demand to be between 900 tons and 1000 tons this year. In 2014, it was 842.7 tons.
A healthy monsoon season could goose demand further. Indeed, a good monsoon season is crucial for robust gold demand in India. Nearly two-thirds of India's gold demand comes from rural farming areas where jewelry is a traditional store of wealth for millions who have no access to a formal banking system.
Predictions are for a "normal" monsoon season in India, which should provide a cushion for yellow metal prices in the near term.
A modest bounce in the gold price is also expected after the Fed announces the long-awaited interest rate increase, as that would alleviate some of the uncertainty hovering around gold, according to The Wall Street Journal.
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