The price of gold tumbled to a fresh five-year low yesterday, stoking fears that the yellow metal is losing its lustre as a safe-haven asset.
Heavy selling on the Shanghai Gold Exchange and New York's Comex yesterday morning sent gold tumbling from US$1,132 an ounce to US$1,089 in just minutes.
It stabilised at US$1,110 in the evening but this is still a level not seen since 2010 and a far cry from the glory days of 2011, when peak gold price was US$1,890 an ounce.
"In Shanghai, close to five tonnes of gold were sold in a two-minute window just prior to 9.30am, in a market where the normal volume traded is 25 tonnes in an entire day," said ANZ Research commodity strategist Victor Thianpiriya.
Shanghai's sell-off was immediately prefaced by an "unusual spike" in trading volume on the Comex, he added.
This suggests that speculation or forced selling on the part of a single large market player was behind the price fall, said Mr Thianpiriya.
The plunge comes as the price of gold has been held down by expectations that the US will raise interest rates before the year end, which will give a boost to the dollar and make it more attractive than holding the dollar-denominated metal.
The gold price began its latest slide last Friday, when speculators were disappointed when China said its official gold reserves had risen by less than had been estimated.
That day, the SPDR Gold Trust, the world's top gold-backed exchange-traded fund (ETF), reported outflows of more than 11 tonnes - the largest single-day outflow since last year, noted Mr Thianpiriya.
In fact, paper demand for gold from ETFs and stock exchanges has been declining over the past four years, said OCBC Bank economist Barnabas Gan, and it would be hard even for the world's largest gold importer to buck this trend.
"Physical demand for gold - whether from central banks or private investors - is only 2 per cent of total global demand," he explained.
The overall weaker demand has called into question the traditional role of gold as a safe-haven asset or a hedge against inflation.
Mr Gan observed that the VIX volatility index, a so-called fear gauge of the markets, has been less correlated to gold prices since the start of the year.
Many analysts had also expected the debt crisis in Greece to send investors flocking to gold as a safe haven, but were surprised to see only a marginal rise in the price of gold, said Mr Avtar Sandu, Phillip Futures senior commodities manager.
And at least for now, "the risk of inflation appears muted, given low oil prices", said Mr Gan.
For most analysts, a gold rally is unlikely, barring another oil scare or chaos in China.
Mr Gan expects gold to be US$1,050 an ounce by the year end. Mr Thianpiriya is tipping US$1,125.
Mr Sandu believes prices have bottomed, as they are unlikely to be sustained below the cost of production. "The cost of mining gold at the inefficient mines is US$1,200 an ounce, and at the bigger firms with good cost structures, it's US$800 to US$900," he said.