Gold, heading for the first annual drop since 2000, is approaching its lowest price this year as the Federal Reserve signals it may ease stimulus because of a strengthening economy.
The CHART OF THE DAY shows gold is trading 5.6 percent above a 34-month low of $1,180.50 an ounce set on June 28. UBS AG cut its one-month target to $1,180 yesterday and prices may “easily” fall below $1,125 by the end of December, said John Stephenson at First Asset Investment Management Inc.
Gold slid 26 percent since the beginning of January as some investors lost faith in the metal as a store of value. Minutes from the Fed’s October meeting released last week showed policy makers expected an improving economy will warrant less stimulus in “coming months,” easing concerns about a weaker dollar and faster inflation. Global equities are trading near a more than five-year high set earlier this month.
“Why do you need something that yields nothing and is giving you a negative return?” said Stephenson, who helps oversee about C$2.8 billion ($2.65 billion) in Toronto. “When we do get tapering, the underlying message is the economy has improved well enough that we don’t need all this stimulus. The markets will likely do reasonably well, responding to better growth.”
Gold dropped as much as 15 percent since Aug. 28, reaching a four-month low of $1,225.55 on Nov. 25. It was at $1,247.01 yesterday in London. Prices climbed 70 percent from December 2008 to June 2011 as the U.S. central bank pumped more than $2 trillion into the financial system, increasing concern that future gains in consumer prices would accelerate.
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