The problem for gold isn’t just that prices are dropping. For many, the metal also has lost its charisma.
Sentiment means a lot in the bullion market, where only about 60 percent of what gets mined or recycled each year is used in jewelry and industrial applications. The rest is sold as coins or bars, so when demand from investors dries up, there can be painful consequences for the bulls who remain.
Prices will drop to $984 an ounce before January, according to the average estimate in a Bloomberg News survey of 16 analysts and traders. That would be the lowest since 2009 and a 10 percent retreat from Tuesday’s settlement. Speculators are shorting the metal for the first time since U.S. government data began in 2006, and holders of exchange-traded products are selling at the fastest pace in two years.
“Gold is out of fashion like flared trousers: no one wants it,” said Robin Bhar, an analyst at Societe Generale SA in London. “It’s not going to collapse, but we think it is going to be at a lower level in the not-too-distant future.”
After drifting lower for most of 2015, gold tumbled in July, heading for the biggest monthly decline in two years after slumping to the lowest since February 2010. The retreat shows how the metal has lost its appeal as a commodity and as an alternative to currencies, according to Macquarie Group Ltd. Futures in New York traded at $1,090.90 at 10 a.m. on Wednesday, down 0.5 percent from a day earlier.
Prices are plunging amid mounting speculation that U.S. interest rates will climb this year, curbing the appeal of bullion because it doesn’t pay interest like competing assets. At the same time, China bought less of the precious metal than analysts were expecting, and the dollar is strengthening.
For much of the previous decade, prices were on the rise. Buying picked up after global central banks fought the 2008 financial crisis with unprecedented stimulus, stoking fear of accelerating inflation. Futures gained more than six-fold in 12 straight years of gains through 2012.
An improving U.S. economy spurred a shift in sentiment, driving bullion into a bear market in April 2013. About 60 percent of respondents in a separate Bloomberg News survey of 27 traders and analysts say that the metal will post a third straight annual loss this year. That would be the worst rout since 1998, when gold was last out of favor and languished near a 19-year low.
Not everyone is heading for the exit. Bullion still has a place in portfolios as “insurance,” said Frank Holmes, a San Antonio-based money manager at U.S. Global Investors, which oversees $818 million. The International Monetary Fund said Monday developments in Greece remain a risk for the euro area and warned that authorities shouldn’t become complacent about the scale of the threat after the nation reached a deal with its creditors.
Physical demand can also help support prices. Sales of American Eagle gold coins at the U.S. Mint in July are heading for the biggest monthly total since April 2013. Buying has also increased at the Royal Canadian Mint, while Perth Mint Treasurer Nigel Moffatt told Bloomberg Television on Wednesday demand had surged since the price fell below $1,100.
“As an investor, you should have gold,” Holmes said. “There are lots of systemic risks out there.”
Hedge funds aren’t convinced. Speculators held a net-short position, or wagers on declines, of 11,345 contracts in the week ended July 21, according to the most-recent data from the U.S. Commodity Futures Trading Commission. That’s the first net-bearish outlook since the data begins in 2006.
Analysts who’ve been right in the past are forecasting more losses. Goldman Sachs Group Inc.’s Jeffrey Currie, who told investors to sell before the 2013 slump, has said the metal could fall below $1,000. Oversea-Chinese Banking Corp.’s Barnabas Gan, the most-accurate forecaster of precious metals over the past two years based on rankings compiled by Bloomberg, predicts $1,050 by December.
More than $5.7 billion has been wiped from the value of global gold ETPs in July. Investors cut holdings for a ninth day to about 1,539 metric tons, the smallest hoard since 2009. They have been selling for three straight months.
“Gold is a weird relic of antiquity,” said Brian Barish, who helps oversee about $12.5 billion at Denver-based Cambiar Investors LLC. “It’s not a commodity that has much fundamental demand. It’s pretty, so people use it for jewelry. But it’s unlike iron ore or oil, or copper, or corn. There’s not specific end-use for it. People just like it, so it becomes a discussion about fervor.”
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