Gold Drops Against a Stronger USD as Physical Demand Softened

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On Monday, gold stretched its last week’s 7% fall, hit by a stronger USD, but the drop in prices unsuccessful to recover physical demand considerably when bullion dropped its most in 30 years, in April. Investors continued to put holdings in gold exchange-traded funds, regardless of the yellow metal’s typical appeal even called the safe-haven asset.

Spot gold had lost 0.5% to reach $1,290.65 an ounce. On Friday,  it increased over 1% but showed its poorest weekly performance since September 2011. Comex gold dropped $2 to reach $1,290.10.

On Friday, central bank in China confronted down its cash-hungry banks, again leading interest rates to spike surprising levels of 25% for some banks, strengthening fears on cash crunch in the world’s No.2 economy.

Holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, dropped an additional 0.54% to reach 989.94 tons on Friday also reaching the lowest in more than four years.

India and China, the top two gold consumers, physical demand was soft, inconsistent to the gold sell-off in mid-April which encouraged a distracted rush, increasing premiums and narrowing supplies. Gold demand in Indian has been hit by the new government rules on imports and financing, also affected by the weak rupee.