Gold's longest slump since the financial crisis extended for an eighth day, with the tumble spilling over into silver, which fell to its lowest level since 2010.
Falling appetite for the safe haven of gold has pushed the metal down 20% since the start of the year as inflation fears faded and global growth improved. In Asia, investors have zeroed in, especially on Japan where the central bank's aggressive easing measures have kick started an economic recovery and pulled up shares.
The biggest moves on Monday were felt in silver, which dropped 9% in the first 10 minutes of Asian trading, touching its lowest level since September 2010. It later recouped some losses to trade down 3.9%. Silver is less liquid than gold and therefore more susceptible to such sharp moves. Spot gold fell 1.2% to $1,344 a troy ounce, and is off 8.9% since the beginning of May.
"The selling pressure will persist if equities and the U.S. dollar continue to strengthen," Kelly Teoh, market strategist at IG Markets in Singapore, said. "Yields in the equities and currencies are too good to ignore."
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Some Asian traders said the large move in silver during early trading came as Japan-based investors rushed to sell silver and cover losses from gold's 1.6% slump on Friday, and to cover bets on the yen after it unexpectedly turned stronger Monday. The Japanese currency climbed after Economy Minister Akira Amari cautioned that further falls in the yen may harm the Japan economy.
Others said they're seeing investors moving out of precious metals and into the yen as a wager on a recovery in Japan. The Japanese government upgraded its assessment of the domestic economy Monday as a pickup in exports fueled by the yen's slide since October helped improve confidence in Japan's still-nascent economic recovery.
Investors have pulled $22 billion out of gold funds over 19 straight weeks of outflows, according to data provider EPFR Global. Redemptions from inflation-protected bond funds have also hit a six-week high.
"The slump of silver is mainly due to fund outflows from precious metals to yen as some investors are betting on an upturn of the Japanese currency as well as continued rally in the equities market in Japan," Yu Kam-Wing, an executive director at Henfin Ltd., a Hong Kong-based gold trader, said.
Gold and silver prices denominated in yen were also hit hard by the yen rally, with six-month gold on the Tokyo Commodity Exchange dropping as much as 3.1% Monday, and silver nearly 4%. By contrast, Asian stocks advanced, with Japan's Nikkei Stock Average climbing 1.3%.
Still, while futures of the precious metals are slumping, there continues to be demand for bullion whenever prices move lower, say dealers in Asia.
Physical demand in India and China, the world's two biggest gold buyers, soared in mid-April after futures prices plummeted, indicating retail investors' confidence in the long-term value of precious metals. Even before the slump, in the first three months of the year China's gold demand rose 20% on-year, and India's rose 27%, according to the World Gold Council.
"Whenever prices drop, sales are going to be good," said Zane Lim, regional operations manager at Singapore-based dealer BullionStar. Mr. Lim says some customers had expressed interest in buying bars and coins over the weekend following Friday's U.S. selling.
After high-volume buying over the past few weeks, many bullion dealerships in Singapore and Hong Kong are running low on stocks and precious metals premiums, which customers pay on top of outright prices to secure metal, are rising.
But in India, there are some signs starting to appear that the demand is starting to decline after the earlier rush of buying. The government has sought to damp gold demand and prevent speculation by raising the import tax on it to 6% from 2%. Plus a restriction on credit availability for imports by dealers is also limiting price declines inside the country and deterring purchases.
"Major buying has already happened," said Haresh Soni, chairman of the All India Gems & Jewellery Trade Federation. "We won't see the rush as we witnessed during the mid-April gold price crash."
