Gold prices plunge to five year low

Gold prices dropped to a five year low on Monday, plunging 4 percent at one point to $1,088 a troy ounce – the lowest level since March 2010.

The price of gold was affected by aggressive selling out of China, with over $1.7 billion-worth of the commodity dumped in minutes.

The commodity is often used as a hedge against inflation, deflation or currency devaluation.

Therefore, its attractiveness as an investment option may has been undermined by the recent strength in the US currency and expectations for higher interest rates.

On top of that, concerns about the Greek economy and volatile Chinese stock markets have eased and didn’t manage to succeed  in restoring the appeal of gold.

Chinese gold reserves not as large as what analysts expected

A few days ago China revealed how much gold it has stashed away, announcing a 57 percent jump in reserves and overtaking Russia to become the country with the fifth-largest reserve of the commodity.

The People’s Bank of China said in a statement on Friday that China has increased bullion assets to 53.31 million troy ounces, or around 1,658 metric tons – up from 1,054 tons in 2009.

However, the increase did not exceed analyst estimates – with many expecting to see much bigger numbers.

“Gold has special risk-return characteristic, and at specific times is not a bad investment,” the People’s Bank of China said on its website.

“But the capacity of the gold market is small compared with China’s foreign exchange reserves, if foreign exchange reserves were used to buy large amounts of gold in a short amount of time, it will easily affect the market.”

Market value of world’s largest miners of gold sinked

The steep decline in the price of gold also had an affect on the world’s leading miners of the precious metal.

Shares in Barrick Gold and Newmont Mining, the two largest gold miners in the world by output, both dropped 10 percent on Monday. Shares of the most valuable gold miner by market capitalization, Goldcorp, fell 7.5 percent.