Gold price crashes as Chinese offload

(July 20, 2015)

Gold plummeted from $US1132 an ounce to $US1092 in the space of minutes today after 5 tonnes of bullion was unloaded on the Chinese market.

However, the price rebounded to $US1109 shortly after.

"There was some heavy selling on the Shanghai Gold Exchange this morning," said Victor Thianpiriya, ANZ precious metals analyst.

Monday’s gold price crash

"Half-an-hour after the market opened we saw 5 tonnes of gold sold through the Shanghai gold exchange, which is way above normal levels.

"I don’t believe this was a result of fundamentals. Silver prices usually move in tandem with the gold price. That wasn’t the case this morning. 

Mr Thianpiriya said the sale was probably an isolated case of speculation.

"It seems to me that someone was taking advantage of a timezone with lower liquidity. It looks like speculation or perhaps foreselling of some sort but obviously very hard to know for sure."

Earlier in the day, gold fell to a five-year low pressured by a strong US dollar and expectations for a US interest rate cut. 

The episode is the latest in a string of declines for the precious metal, which was trading at $US1187 an ounce a month ago.

ANZ head of commodities Mark Pervan said expectations of a US rate rise - and the impact of that on the US dollar - remained the main headwind for bullion.

Another headwind on bullion may be the easing of the Greek debt crisis, said Mr Pervan.

"Maybe it held up during the Greece issues. What could be happening is the unwinding of the risk premium that looked like it wasn’t in gold but effectively probably was - the gold price should have been weaker," he said.

Furthermore, the People’s Bank of China said on Friday that it owns about 1658 tonnes of bullion - far less than expectations, he said.

"The market consensus was that it would have been close to 3500 tonnes. Coming in at 1600 tonnes tells you that China’s central bank purchases don’t look like the same tailwind for gold as first thought...it was well under expectations."

Gold fell just over $US10 per ounce on the Chinese announcement on Friday.

Although the price of gold in US dollar terms has reached a six-year, the price of gold in Australian dollar terms - $1534.71 per ounce - is still well above the levels of 2013 and 2014, when it was trading between $1300 and $1400.