Gold, Silver Trade Near Five-Year Lows

HONG KONG—Gold and silver prices continued to trade close to their lowest level in five years in Asia trade Tuesday amid rising expectations the U.S. Federal Reserve will raise interest rates later this year.

Gold dipped below the psychological mark of $1,100 an ounce in early Asia hours, but quickly nudged above that level on bargain hunting. It was recently trading at $1,104.08/oz.

"I think there is still going to be a little bit of pressure," said Victor Thianpiriya, a commodity strategist at ANZ Bank. "Prices could head lower."

Mr. Thianpiriya said the yellow metal could test $1,000/oz in the near term, a level at which several mining companies might find it difficult to profit from extracting the commodity.

The gold market has turned bearish, with hedge funds that invest huge sums in gold futures reducing their long positions to nine-year lows. At the same time, speculators' short positions—bets that gold could be bought cheaper in the future—have jumped in recent days.

Analysts say a sustained rebound in gold prices is unlikely any time before the U.S. raises interest rates, a decision that is expected later this year after comments from U.S. Federal Reserve Chairwoman Janet Yellen last week.

A rising dollar makes raw materials less affordable to overseas investors, while higher interest rates tend to draw money into yield-bearing assets and away from commodities, which pay their holders nothing and often carry storage costs.

Gold gained investors' favor because of its safe-haven appeal after the 2008 financial crisis, but investors' risk appetite seems to have increased with a modest economic recovery under way in the U.S. Moreover, the cost of holding gold looks set to increase because of an expected rise in U.S. interest rates.

Other precious metals such as silver, platinum and palladium have fallen in gold's slipstream.

Silver prices nudged up from the opening price of $14.63 a troy ounce to $14.76 Tuesday, close to levels seen in early 2010. Platinum prices are at $974.70 a troy ounce, close to a six-and-half-year low, while palladium is near its lowest level since November 2012 at $605/oz.

Still, investment sentiment toward silver is relatively better than gold because of the industrial applications of the white metal, which is being helped by a strengthening U.S. economy.

"The difference between silver and gold is like whether you are living in the top floor or the ground floor of a house. If there is a quake, both will crash but probably the one on the top floor will be less affected," said Gnanasekar Thiagarajan, director of Commtrendz Risk Management.

Write to Biman Mukherji at [e-mail]

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