According to a report from the Wall Street Journal,this year hasn’t been a vintage one for gold. It has shed a quarter of its value in 2013 as investors walked away, largely taking the form of massive liquidations of exchange-traded fund holdings. Having fallen 28% so far this year, gold is well on track to end its 12-year strong bull run. The metal’s slump was triggered in the second quarter, when prices dived by $200 an ounce in two days in April. Chief among the drivers of the gold slump was a mounting fear that the Federal Reserve would scale back its bond purchase program. That caused many investors and analysts to turn negative.
To be fair, gold did find some supporters today, who said that the response was overblown.
To be fair, gold did find some supporters today, who said that the response was overblown.
“The response of the gold price to the Fed’s announcements yesterday is exaggerated,” said analysts at Commerzbank. The U.S. central bank reiterated Wednesday night that interest rates were likely to remain low for the near future. Low rates make gold, which carries no guaranteed yield, more attractive compared with some other assets.
“The fact that money will remain extremely ‘cheap’ for a long time yet should in fact have lent support to the gold price rather than it coming under pressure due to the end in the near future of quantitative easing,” said Commerzbank.
But the outlook for next year is less than rosy.
Investor sentiment toward the metal is could remain bruised for some time, say analysts.
And in India, for years the largest gold-buying market that would usually scoop the metal up at such low prices, hands are tied by strict import taxes that have been hiked up substantially this year. Physical demand from China, expected to overtake India this year as the top consumer, is expected to be robust, but that might still not make up for India’s shortfall. And it’s worth bearing in mind that China’s consumed vast amounts of the metal already in 2013.
“We expect investment demand to be in the driver’s seat and position liquidation to continue in 2014 and 2015,” said bank ABN AMRO Thursday. “More attractive returns on other investments [and] an environment of low inflation risk and positive investor appetite will result in investors reducing gold positions.”
They bank kept its year-end forecasts for 2014 and 2015 at $1,000 per ounce and $800 per ounce, respectively.
