Gold rout sends global miners lower as commodity slump worsens

The prospect for higher US interest rates sent gold to the lowest level in more than five years.
The prospect for higher US interest rates sent gold to the lowest level in more than five years.PHOTO: REUTERS

LONDON (BLOOMBERG) - The rout in commodities worsened as the prospect for higher U.S. interest rates sent gold to the lowest level in more than five years. Miners posted the steepest losses in benchmark stock indexes around the world, with selling heaviest among resource producers in emerging markets.

Bullion slid 2.1 per cent to US$1,108 an ounce at 12:41 p.m. in New York, sending the Bloomberg Commodity Index to its lowest since 2002. The euro traded at US$1.0851, near a two-month low. The MSCI Emerging Markets Index fell 0.8 per cent.

Investors have soured on precious metals as the US dollar has emerged as the champion currency with the Federal Reserve closer to raising rates for the first time since 2006. AngloGold Ashanti Ltd. sank to a record in Johannesburg, while Canada's Barrick Gold Corp. dropped to the lowest since 1990. Better-than-forecast corporate earnings took the Standard & Poor's 500 Index within one point of a record.

"We've seen a resumption of a rally in the dollar and if you do the math, that's bad for commodity prices," said Peter Sorrentino, a Cincinnati-based fund manager at Huntington Asset Advisors Inc., which oversees US$1.8 billion. "The implications there for the hard asset part of the global economy is pretty abysmal looking out to the rest of the year."

Fed chair Janet Yellen has signaled the central bank may raise interest rates this year on the back of an improving US economy. Higher borrowing costs curb the attractiveness of commodities such as gold, which doesn't pay interest or give returns like assets including bonds and equities.

Treasuries declined, pushing two-year note yields to a three-week high, as St. Louis Fed Bank President James Bullard said the Fed should prepare to raise interest rates this year.

The yield on two-year notes rose four basis points, or 0.04 percentage point, to 0.70 per cent. Ten-year Treasury note rates added two basis points to 2.37 per cent.

The euro held near a two-month low against the dollar as diverging monetary policies between the Fed and other central banks bolstered the dollar. The yen slipped 0.2 per cent to 124.32 against the US currency. South Africa's rand and Turkey's lira led declines in emerging markets, dropping at least 0.7 per cent.

The stronger dollar contributed to a sixth day of losses for gold, which sank as much as 4.2 per cent. Prices tumbled 2.5 per cent last week, the most since March, as China on Friday revised the size of its gold reserves to show holdings below what had been estimated by analysts. The SPDR Gold Trust, the world's largest exchange-traded gold fund, dropped 2.1 per cent to the lowest since 2010.

Gold's rout sent commodity producers tumbling around the world. Newmont Mining Corp. sank 12 per cent and Freeport-McMoRan Inc. lost 4.5 per cent to lead declines in the S&P 500. Randgold Resources Ltd. paced losses in Europe, while South Africa's AngloGold Ashanti was the worst performer among emerging equities.

Among other stocks moving Monday, Morgan Stanley rose after profit beat analysts' estimates, while Halliburton Co. advanced after its earnings fell less than predicted. Lockheed Martin Corp. gained after its quarterly results exceeded estimates.

Advances in Google Inc. and Facebook Inc. pushed the Nasdaq Composite Index to a record for a second day on Friday, while the Nasdaq 100 surged 5.5 per cent for the week to a 15-year high. The S&P 500 added 2.4 per cent for its best weekly advance since March.

Overseas, the Stoxx Europe 600 added 0.3 per cent to cap a ninth day of gains, its longest winning streak since April 2014. The gauge rallied 4.3 per cent last week, the most since January, and closed 2 percent away from a record.

Greece ordered repayment of 6.8 billion euros (S$10.1 billion) to creditors, the Finance Ministry said. While banks reopened three weeks after closing to prevent economic collapse, the country's financial markets remain shut.

"It's good to see that Greece is moving out of the headlines," Alessandro Bee, a strategist at Bank J Safra Sarasin, said by phone from Zurich. "The worst has been avoided and the risk-aversion sentiment that dominated markets has definitely eased. More M&A activity is among things showing that confidence is returning."