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Gold price falls to lowest level in five years

Published:Monday | July 20, 2015 | 4:25 PMAP

Investors are running out of reasons to own gold.

The price of the metal, which is often seen as a hedge against inflation and a weak dollar, slumped to its lowest in five years on Monday.

The dollar has rallied in recent months, diminishing the allure of holding gold. The US economy has been on firmer footing, and tumult in China's markets and Greece's debt crisis have failed to restore gold's appeal as a safe haven.

The price of gold had surged in the years immediately after the 2008 financial crisis, topping out at nearly US$1,900 an ounce in August 2011, as investors anticipated that the Federal Reserve's ultra-low interest rate policy and huge bond-buying program would undermine the dollar and lead to inflation.

That scenario didn't pan out.

Instead, inflation has remained subdued and the economy maintained its recovery, albeit at an uneven pace. That has boosted demand for the dollar.

On Monday the price of gold sank another US$25 to US$1,106 an ounce. That's about 40 per cent below its recent peak and the lowest price since March 2010.

"For past several weeks (gold) has been on the defensive because of the stronger dollar," said Jim Steel, chief precious metals analyst at HSBC in New York.

When investors are worried about the outlook for the US and the global economy, they tend to favour gold, Steel said. But when the US stock and bond markets are strong, as they are now, investors don't really see a reason to hold gold which, unlike stocks and bonds, doesn't produce any income.

Gold's allure as a store of value in times of crisis also appears to be fading. Neither the recent stock market crash in China nor the Greek debt crisis succeeded in restoring the appeal of gold.