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Gold Slumps Toward Bear Market as Investors Cut Holdings

Gold Slumps Toward Bear Market as Investors Reduce ETP Holdings
Gold rallied every year from 2001 through 2012 as investors sought protection from currency debasement and potential inflation. Photographer: SeongJoon Cho/Bloomberg

Gold dropped to the lowest since May, nearing a bear market, on signs that investors are seeking higher returns in equities as the global economic recovery cuts demand for haven assets. Palladium fell the most since October.

Global holdings of exchange-traded products backed by gold are down 7.4 percent this year, data compiled by Bloomberg show. Prices have fallen 7.4 percent this year, while the MSCI All-Country World Index of equities advanced 5 percent. The metal may continue to decline as the resilience of the financial system to recent developments in Italy and Cyprus suggests reduced risk of a so-called major meltdown, Credit Suisse Group AG said yesterday.

“Equities continue to attract more capital,” David Lee, a vice president at Heraeus Precious Metals Management in New York, said in a telephone interview. “The safe-haven premium for gold also seems to have disappeared with the world not falling apart.”

Gold futures for June delivery fell 0.1 percent to settle at $1,552.40 an ounce at 1:37 p.m. on the Comex in New York, after dropping to $1,539.40, the lowest for a most-active contract since May 30.

Prices have tumbled 17.9 percent from a record close of $1,891.90 in August 2011, nearing the 20 percent that typically defines a bear market. Metal for immediate delivery has slumped 18.2 percent from its all-time high settlement of $1,900.23 in September that year. Bullion rallied every year from 2001 through 2012 as investors sought protection from currency debasement and potential inflation.

Futures trading was 11 percent higher than the 100-day average for this time of day.

‘Stay Away’

Gold assets in ETPs tumbled 6.9 percent last quarter, the most since at least 2004. Holdings in the SPDR Gold Trust, the biggest bullion-backed ETP, are at the lowest since July 2011.

“Investors choose to stay away or book profits after record first-quarter ETF outflows,” Andrey Kryuchenkov, a London-based analyst at VTB Capital, wrote in a report today. “Investor sentiment is likely to remain positive on equities versus downbeat gold going forward.”.

On the New York Mercantile Exchange, palladium futures for June delivery retreated 4 percent to $725.45 an ounce, the biggest loss since Oct. 23. Trading was 73 percent higher than the 100-day average.

Silver futures for May delivery slid 0.1 percent to $26.767 an ounce on the Comex. Earlier, prices slumped as much as 0.8 percent to $26.575, the lowest since July 24.

Platinum futures for July delivery dropped 1.6 percent to $1,517.80 an ounce on the Nymex. Earlier, prices dropped to $1,511.10, the lowest since Aug. 31.

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