Gold Hits 5-1/2 Year Low, Set for Worst Week Since October

CommoditiesReuters

Gold slid more than 1 percent on Friday to its lowest since early 2010 as fresh strength in the dollar prompted another wave of selling, putting the metal on course for its biggest weekly loss in nine months.

Prices have been under pressure since tumbling more than 3 percent in Asian trading hours on Monday, their biggest one-day drop in nearly two years, in a selloff accompanied by heavy trading volumes in New York and Shanghai.

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Spot gold hit a low of $1,077.00 an ounce on Friday and was down 0.7 percent at $1,082.72 at 1418 GMT. U.S. gold futures for August delivery were down $11.70 an ounce at $1,082.40.

Gold has been hurt this year by expectations that the Federal Reserve is on track to raise interest rates for the first time in nearly a decade, boosting the opportunity cost of holding non-yielding bullion while lifting the dollar.

"In the short term, investor sentiment is what actually moves prices," Capital Economics analyst Simona Gambarini said. "It's now likely that the Fed will hike rates this year, most likely in September ... (and) investors are already showing that in their positioning. They're becoming more bearish on gold."

The dollar rose on Friday after data the previous day showed U.S. weekly jobless claims dropping to their lowest since 1973, while the euro fell on downbeat German and euro zone data.

As gold prices slump, holdings of the world's biggest gold-backed exchange-traded fund, the SPDR Gold Trust, fell for a sixth day on Thursday to 684.6 tonnes, the lowest since September 2008. The fund is on track for its biggest weekly outflow since early May.

"Rising nominal rates and disinflation have created the most bearish cocktail for gold in the past 43 years," Bank of America said in a note.

"As such, we reiterate our view that gold prices are unlikely to rally into a Fed tightening cycle and now believe gold could dip below $1,000 an ounce by 2016."

Data from the International Monetary fund showed on Friday that Germany trimmed its official sector gold holdings last month, while Russia and Kazakhstan added to reserves.

Physical demand in Asia remained lackluster amid modest premiums in top gold consumers India and China.

Gold is expected to struggle for the rest of this year after sliding to five-year lows on expectations of higher U.S. interest rate, though platinum is expected to fight back, a Reuters poll showed on Friday.

Elsewhere, silver was down 1.6 percent at $14.41 an ounce. Palladium was down 0.5 percent at $611.75 an ounce, while platinum was down 0.7 percent at $968.75, both holding near multi-year lows.

Platinum producer Lonmin said it planned to close or mothball several mine shafts, putting 6,000 South African jobs at risk, because of depressed metal prices. (Additional reporting by Manolo Serapio Jr. in Manila; Editing by Catherine Evans)