Gold Drops for Fourth Day to Near Bear Market as ETPs Shrink

Gold fell for a fourth day, nearing its first bear market since 2008, as investors reduced asset holdings amid optimism a global economic recovery will curb haven demand. Silver traded near an eight-month low.

Gold for immediate delivery declined as much as 0.3 percent to $1,549.62 an ounce and was at $1,551.08 at 2:10 p.m. in Singapore. Prices touched $1,540.29 yesterday, the lowest since May 30, and are set for a second weekly drop. Bullion tumbled 18.4 percent from a record close of $1,900.23 in September 2011, nearing the 20 percent that typically defines a bear market.

Holdings of gold-backed exchange-traded products have contracted 7.5 percent this year to the lowest level since August, data compiled by Bloomberg show. If ETPs outflows gain momentum, prices are likely to struggle in the coming sessions until a new catalyst emerges, Barclays Plc said yesterday. A bull market in equities entered its fifth year last month, with the S&P 500 more than doubling from its bottom in 2009.

“There seems to be an overarching sense of complacency about the world economic picture,” said Gavin Wendt, a director at Mine Life Pty. in Sydney. “There’s a pervading view that gold’s run is over, get out of gold and start putting your money into the share market.”

Gold ETPs stood at 2,435.35 metric tons yesterday, according to data compiled by Bloomberg. The Standard & Poor’s 500 Index (SPX) rose to a record on April 2, after rallying 10 percent in the first quarter as gold dropped 4.6 percent.

Bond Buying

Federal Reserve Vice Chairman Janet Yellen said yesterday that the U.S. central bank should be prepared to alter its $85 billion monthly pace of bond buying based on changes in the economic outlook. That supports a proposal by St. Louis Fed President James Bullard to reduce the pace of purchases as the economy improves or expand it if the economy weakens. Chairman Ben S. Bernanke said last month policy makers are considering this strategy to “appropriately calibrate” its policy.

Gold for June delivery fell 0.2 percent to $1,549.70 an ounce on the Comex in New York. Prices dropped to $1,539.40 yesterday, the lowest for a most-active contract since May 30.

Spot silver fell as much as 0.6 percent to $26.7925 an ounce, set for a fourth weekly slump, and was at $26.8188. Prices touched 26.6488 yesterday, the cheapest since July 24.

Platinum was little changed at $1,522.50 an ounce, poised for a fourth weekly decline. Palladium gained 0.3 percent to $729.05 an ounce, set for a weekly drop.

To contact the reporter for this story: Phoebe Sedgman in Melbourne at psedgman2@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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