Gold Caps Biggest Annual Rout Since ’81 as Investors Lose Faith

Photographer: Simon Dawson/Bloomberg

Assets in exchange-traded products backed by gold fell 33 percent to the lowest since 2009 amid sales by billionaires George Soros and John Paulson. Close

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Photographer: Simon Dawson/Bloomberg

Assets in exchange-traded products backed by gold fell 33 percent to the lowest since 2009 amid sales by billionaires George Soros and John Paulson.

Gold futures, which reached a six-month low today, posted the biggest annual slump in three decades as an improving economy cut demand for wealth protection. Silver touched the lowest since July.

Bullion futures for February delivery fell 0.1 percent to settle at $1,202.30 an ounce at 1:39 p.m. on the Comex in New York, after touching $1,181.40, the lowest since June 28. Prices fell 28 percent this year. Investors lost faith in the metal as a store of value as equities rallied and an economic recovery prompted the Federal Reserve to pare its $85 billion in monthly bond purchases. Silver dropped 36 percent in 2013 to $19.37 an ounce, the biggest annual drop since 1981.

Assets in exchange-traded products backed by gold fell 33 percent to the lowest since 2009 amid sales by billionaires George Soros and John Paulson. Disposals of 867.8 metric tons in 2013 were more than the combined inflows in the prior three years, data compiled by Bloomberg show. The Standard & Poor’s 500 Index of shares climbed 29 percent and is set for its best year since 1997, while the International Monetary Fund signaled this month the U.S. economy will expand more than forecast.

“The fear of tapering and the spectacular performance of the equity market have worked against gold this year,” Bart Melek, the head of commodity strategy at TD Securities in Toronto, said in a telephone interview. “The haven premium has dwindled considerably with the economy showing signs of improvement. Prices could drop to $1,125 before March as there are no reasons to buy gold.”

Silver is the second-worst performer in the S&P GSCI Spot Index of 24 commodities, which declined 2.2 percent. The MSCI All-Country World index of equities climbed 20 percent, while the dollar rose 3.4 percent against a 10-currency basket. The Bloomberg Treasury Bond Index fell 3.2 percent.

Paulson, Soros

Paulson, the largest holder in the SPDR Gold Trust, the biggest bullion ETP, said Nov. 20 he personally wouldn’t invest more money in his gold fund because it’s unclear when inflation would accelerate. Soros and Third Point LLC’s Daniel Loeb sold their entire stakes in the fund in the second quarter.

Gold ETP assets are at 1,764.1 tons, dropping in 2013 after expanding every year since the first product was listed in 2003. About $73.6 billion was erased from the value of holdings as prices sank, data compiled by Bloomberg show. The SPDR Gold Trust fell 41 percent this year to 798.22 tons, the lowest since 2009, according to data on the fund’s website.

ETP Sellers

While ETP investors “had previously been a source of demand for gold, they became net sellers,” said Ric Spooner, chief analyst at CMC Markets in Sydney. “Investors gave up at least temporarily on the notion that central-bank stimulation was going to cause an inflationary problem in western economies in the foreseeable future.”

A further 311 tons will be withdrawn from gold-backed ETPs next year, according to the median of 11 analyst estimates compiled by Bloomberg. Holdings in ETPs backed by silver advanced 2.4 percent this year to 19,377.5 tons, according to data compiled by Bloomberg. Palladium assets climbed 15 percent, while platinum holdings surged 71 percent, data show.

Consumption in China, poised to overtake India as the biggest buyer this year, may increase 29 percent to 1,000 tons in 2013, the World Gold Council estimates. Gold in Europe is being refined from larger bars suitable for local users into smaller sizes favored in Asia, while Deutsche Bank AG and UBS AG are among banks opening vaults in the region this year.

China Demand

Physical demand, most notably from China, may help stem the potential for further losses, James Steel, an analyst at HSBC Securities (USA) Inc., wrote in a note yesterday. The drop below $1,200 this month boosted Chinese demand, he said.

Jeffrey Currie, Goldman Sachs Group Inc.’s head of commodities research, said Oct. 8 that gold is a “slam dunk” sell for next year as an improving U.S. economy reduces the need for the metal as a store of value.

There’s a “much stronger outlook” for U.S. growth in 2014, IMF Managing Director Christine Lagarde said in an interview broadcast Dec. 22 on NBC’s “Meet the Press.” Growth may accelerate to 2.6 percent next year from 1.7 percent in 2013, according to economist estimates compiled by Bloomberg.

“The year-end selling continues,” Phil Streible, a senior commodity broker at R.J. O’Brien & Associates, said in a telephone interview from Chicago. “The data out of U.S. continues to be strong so the same story of trading weak is being carried forward to the new year.”

To contact the reporters on this story: Phoebe Sedgman in Melbourne at psedgman2@bloomberg.net; Debarati Roy in New York at droy5@bloomberg.net

To contact the editor responsible for this story: Millie Munshi at mmunshi@bloomberg.net

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