Gold dives to 5-year low with US dollar on the rise as markets see US rate hike

The US dollar hit a three-month high against a basket of major currencies.
The US dollar hit a three-month high against a basket of major currencies.PHOTO: BLOOMBERG

SINGAPORE (BLOOMBERG) - Gold headed for the biggest single-day loss in almost two years and the dollar traded near a three-month high versus the euro as investors switch focus back to the timeline for higher US borrowing costs. Asian stocks fluctuated with Japan closed for a holiday.

Gold for immediate delivery slid 3.1 per cent by 9:41 a.m. in Hong Kong, trading at a five-year low after sliding 1 per cent Friday. The greenback was steady at US$1.0825 per euro after climbing the most since May versus the common currency last week. The Bloomberg Dollar Spot Index rose 0.1 per cent in a fourth rising day.

The MSCI Asia Pacific excluding Japan Index fluctuated, while Standard & Poor's 500 Index futures were little changed.

The dollar is coming off its best week in two months after Federal Reserve chair Janet Yellen reaffirmed the outlook for rate hikes this year in the US and as concern over Greece and China's stock rout receded. Commodity currencies are near multi year lows, with New Zealand projected to join Canada in cutting borrowing costs this week amid sliding commodity prices. Banks in Greece reopen Monday following their three-week shutdown.

"The market is underpricing what the Fed is likely to deliver this year," Ray Attrill, global co-head of currency strategy at National Australia Bank Ltd. in Sydney, said by phone. "Because commodity currencies and the euro are on a downtrend at the moment, to some extent the dollar's stronger by default. It's as much to do with the negative fundamental and policy influences on other currencies that's leading the dollar to be stronger by default."

The dollar strengthened against Asian emerging-market currencies, gaining at least 0.2 per cent versus the South Korean won and the Malaysian ringgit. The Bloomberg dollar gauge, which tracks the greenback against 10 major peers, jumped 1.6 per cent last week as Greece accepted a bailout deal and mainland Chinese equities capped a second week of gains.

Gold's biggest drop since October 2013 took it to US$1,099.05 an ounce, its lowest price since March 2010.

China said at the end of last week that it boosted bullion assets to about 1,658 metric tons, less than brokers at GoldCore Ltd. and Sharps Pixley Ltd. had expected. Signs the economic rebound in the U.S. is on a strong footing is also taming demand for the precious metal as a haven investment.