Mumbai: Global gold prices continued to slide for the sixth consecutive session and tumbled to a five-year low as the dollar strengthened on expectations that the US Federal Reserve will hike interest rates later this year. A flash crash in gold prices was also reported on Monday morning, when prices plunged suddenly by 4% in the Chinese markets.

International gold prices fell to $1,088.50 per troy ounce, the lowest in five years. Prices recovered later to trade at $1,109.75 an ounce.

In the Indian markets, MCX Gold futures fell to as much as 24,904 per 10gm, level last seen on 28 June 2013. At 5.47pm, MCX Gold futures were trading at 25,150 per 10gm, down 1.55% from its Saturday’s close.

The weakness was also evident in other precious metals.

MCX Silver Futures fell as much as 2.25% to 33,430 per kg—a level last seen 1 December 2014. Silver was trading at 33,980 per kg down 0.66% from its Saturday’s close.

“A host of factors are hurting gold. The key ones being a strong dollar and a possibility of an interest rate hike by the Fed later this year," said Kishore Narne, associate director (commodity and currency) at Motilal Oswal Commodities Broker Pvt. Ltd.

Last week, US Federal Reserve chair Janet Yellen reaffirmed that US interest rates were likely to rise later in 2015. Also, data released on Friday pointed to a robust pick-up in US consumer prices and housing starts, adding to the confidence regarding growth in the world’s largest economy.

The US dollar index, which measures the value of greenback relative to a basket of six major foreign currencies, gained 7.86% to 97.974 year to date. However, the Indian rupee has seen a less than 1% fall against the dollar since the start of this year. This has meant that Indian gold prices have moved more or less in sync with global prices.

International gold prices are down 6.12% year-to-date, while Indian gold prices are down 6.2% in the same period.

“We did expect some selling as we near the rate hike... Also, with the Greece saga behind us, at least for the time being, it would have removed an added layer of demand," said Chirag Mehta, senior fund manager (alternative investments), Quantum Asset Management Co.

“Gold prices are closer to cost of production. So, ideally they should not fall a lot from here, though bouts of panic selling when (Fed) rate hikes happen are not ruled out," added Mehta.

On Friday, China announced its gold reserves had jumped nearly 60% over the past six years, but that did little to stem the fall in gold prices.

Despite the weak prices, retail demand for hold in India remains tepid for now, said Kapil Choksey, partner at Mumbai-based bullion trader Arvind Jewellers. “People are not coming in to buy. They are expecting market to come down further, and they want to wait," said Choksey.

According to Renisha Chainani, senior manager-research (commodities), Edelweiss Financial Services Ltd, July and August are typically slack periods for gold demand, which picks up ahead of the festivals and wedding season starting September.

Subdued global gold prices have meant that interest in gold as an investment has diminished.

India gold ETFs (exchange-traded funds) have seen continuous outflows since February 2013, the longest run of outflows since gold ETFs were introduced in India in early 2007. Since February 2013, gold ETFs have seen outflows of 4,095 crore.

Gold ETF assets under management (AUMs) tumbled to 6,516 crore at the end of June, the lowest since July 2011. This is nearly 46% below the peak AUMs of 12,057 seen in January 2013.

An ETF a fund that is traded on an exchange, and its performance is pegged to an underlying index or an asset which the ETF is designed to replicate. 

“Demand is static. Global ETF holdings have been falling, and they are at multi-year lows," said Chainani of Edelweiss.

Performance of Gold ETFs is pegged to gold prices, and hence a decline has led to a slide in the assets under management in this category worldwide. Global holdings in exchange-traded products backed by gold are at close to the lowest since 2009, a Bloomberg report said on 18 July.

“Gold is a exposure which an investor would take knowing fully well that it is a global exposure for him. It doesn’t participate in India growth story nor does it participate in any accrual income or bonus or dividend," said Nilesh Shah, managing director of Kotak Mutual Fund.

“When someone buys gold in the physical market, there are two types of losses that are incurred viz., the import duty differential and the premium to buy smaller denominations.

Gold ETFs is suitable only for those investors, who’ve decided to invest in gold. Gold ETF is superior than physical gold, but still has the attributes of gold," said Shah.

Interest in gold investments has also diminished due to a rebound in the equity market sentiment, which has revived retail investor interest towards equity investing. The number of retail investors putting money in the equity markets, directly and through mutual funds, is on the rise, Mint reported on Monday based on data of demat accounts and mutual fund folios opened in the past one year.

Gold and equities tend to be inversely correlated. Over the last five years, while the BSE’s benchmark Sensex has posted a 9.7% compounded annual growth rate (CAGR), international spot gold prices recorded a CAGR of -1.3% in the same period.

Ravindra Sonavane contributed to this story.