Global gold price hits 3-year low

Gold fell to its lowest price in three years after US Federal Reserve chairman Ben Bernanke said stimulus measures might be reduced this year as the US economy recovers. Market expectations are for the price to fall below US$1,300 (S$1,663) an ounce this month, while the local gold price declined slightly, eased by appreciation of the baht.

Gold for immediate delivery dropped as much as 3.4 per cent to $1,304.75 an ounce yesterday. Bullion for August delivery sank 5.1 per cent to $1,303.30 an ounce on the Commodity Exchange in New York.

In London, gold fell to the lowest in more than two and a half years, exceeding the drop in April.

Gold has slumped by 22 per cent so far this year amid speculation the Fed will pare its quantitative easing (QE), which helped the metal cap a 12-year bull run last year. Bernanke said the US central bank, which currently buys $85 billion of Treasury and mortgage debt each month, might begin reducing purchases this year and end the programme in 2014 should the economy continue to improve.

Thailand's Gold Traders Association adjusted its local gold price 10 times yesterday, with gold bar selling at Bt19,150 per baht weight.

Kritcharat Hirunyasiri, president of MTS Gold (Mae Thong Suk Group), said the global price was highly volatile on concerns over the likely tapering off of US monetary stimulus. The price is expected to continue its decline, he said.

"The gold price will likely decline consistently and is expected to go down below $1,300 an ounce soon. The local price has been highly volatile, however, softened by the weakening baht," he said.

A Bt1 depreciation of the Thai currency against the dollar affects the local gold price by about Bt1,600 per baht weight, he added.

Tipa Nawawattanasub, chief executive officer of YLG Bullion and Futures, said: "The Fed chairman's statement after the FOMC [Federal Open Market Committee] meeting gave a clear sign of lowering the size of bond purchases this year. It's also possible that the measure will be ended by the middle of next year. This prompted the gold-price drop."

If gold falls below $1,300 an ounce, it is possible for it to dip further to $1,250-$1,220 or Bt18,500-Bt18,000 per baht weight.

Kamonthan Pornpaisarnvijit, director of the Gold Research Centre, said Bernanke's signal could pressure gold prices in the world market after investors purchase dollars. He expects the global gold price to move in a range of $1,300-$1,450 an ounce in the short term.

However, the centre believes that the gold price in Thailand will not drop as much as in the world market because the depreciation of the baht.

The result of the FOMC meeting negatively affected prices in stock, gold and oil markets. Compared with other main currencies, the US dollar has appreciated. Yields of 10-year US government bond went up by 15 basis points, or 6.5 per cent. These figures reflected investors' outlook for the US economy.

The gold price will not decrease substantially because the lower it goes, the more demand for consumption will increase, the centre said, predicting that the global price would be maintained at $1,300-$1,450 per ounce. In the second half of this year, the US economy will be a major factor for gold investment, it said.

"The gold price reacted badly," Cailey Barker, an analyst at Numis Securities Ltd, wrote in a report yesterday. "Here we are between a rock and a hard place where more QE is having less and less of an impact, but withdrawing QE is very likely to have a negative impact."

Gold entered a bear market in April as some investors lost faith in the metal as a store of value amid low inflation and a global equity rally. Holdings in the SPDR Gold Trust have slumped by 351.3 tonnes this year to 999.56 tonnes yesterday, the lowest since February 2009, wiping about $30 billion from the fund's value.

The MSCI All-Country World Index of equities has climbed 5.5 per cent and the US Dollar Index, a measure against six major currencies, has advanced 2.7 per cent.