A dreadful year for gold just got worse. During bullion’s extended bull run, the price relied heavily on accumulation of the metal by Gold ETFs. That trend is now in reverse with sales taking the world’s biggest ETF back to levels last reached in 2008. Yesterday was an especially poor day with offloading at the world’s largest Gold ETF highest in 18 months. Gold bugs may believe it’s always darkest before the dawn, but they may have some wait ahead. Momentum investors are sure to keep riding what for them has been a profitable downward trend. – AH
By Millie Munshi and Phoebe Sedgman
(Bloomberg) — Investors in the world’s biggest exchange- traded product backed by bullion sold the most gold in 18 months as the U.S. economic recovery cut demand for a haven.
Holdings in the SPDR Gold Trust fell 1.6 percent yesterday to 712.9 metric tons, the biggest drop since June 2013. Assets declined to the smallest since September 2008.
Bullion for immediate delivery is heading for the first back-to-back annual decline since 2000. A collapse in oil prices is curbing demand for the metal as an inflation hedge, while the Federal Reserve is moving closer to increasing interest rates. Gains for the dollar and U.S. equities have also made gold less attractive as an alternative asset.
“You’ve got all these factors conspiring against gold,” Michael Cuggino, president and fund manager at Permanent Portfolio Family of Funds Inc. who helps oversee $7 billion, said in a telephone interview. “A certain number of investors are throwing in the towel.”
Spot gold was little changed at $1,177.72 an ounce by 12:11 p.m. in Singapore today. Prices fell 2 percent this year after a 28 percent plunge in 2013, the most since 1981.
The U.S. economy expanded at a 5 percent annualized rate in the third quarter, the biggest advance in 11 years, government figures showed yesterday. Fed officials last week dropped a pledge to keep borrowing costs near zero percent for a “considerable time,” replacing it with a promise to be “patient,” according to a statement.
Value Drops
The value of assets in the SPDR has dropped 13 percent to about $27 billion this year after slumping 57 percent in 2013, according to data compiled by Bloomberg. Holdings in gold-backed ETFs declined 8.7 percent to 1,609.3 tons after a 33 percent plunge last year, data compiled by Bloomberg show.
Gold has “held up pretty well considering other markets have been sold off pretty heavily,” said Mark Pervan, head of industry economics and research at Australia & New Zealand Banking Group Ltd. in Melbourne. “You haven’t seen as much selling in ETFs. Although it’s not recovering, it’s certainly nothing like what we saw last year.”
Holdings in the SPDR Gold Trust in which billionaire John Paulson is the biggest investor have declined 11 percent this year after plunging 41 percent in 2013.
While investors have been selling, some countries have bought gold after reducing holdings for about two decades from the late 1980s. Central banks globally will probably purchase 400 tons to 500 tons this year, the World Gold Council says. Russian reserves climbed for an eighth month in November to about 1,187.5 tons, the highest in at least two decades, according to International Monetary Fund data.
Reallocation Trade
Brent crude oil tumbled 45 percent in 2014 and West Texas Intermediate fell 42 percent as supplies climbed. The Bloomberg Commodity Index of 22 components dropped 15 percent to head for a fourth straight annual loss.
While the stronger dollar has made gold less appealing for American buyers, physical demand in India and China can help support prices, Cuggino said. In the U.S., there’s a “reallocation trade happening” with investors switching out of gold and into equities, he said.
Yesterday’s better-than-estimated report on the U.S. economy sent benchmark stock gauges to record highs.
The collapse in crude and the longest commodity slump in at least a generation means that instead of the surge in consumer prices that gold buyers have been expecting for much of the past decade, the U.S. is “dis-inflating,” according to Bill Gross, who used to run the world’s biggest bond fund.
Gold surged 70 percent from December 2008 to June 2011 as central banks increased money supply on an unprecedented scale, spurring concerns that inflation would accelerate. Bullion generally offers investors returns only through price gains. – BLOOMBERG
