Gold futures for June delivery dropped 0.3 percent to $1,432.60 an ounce at 10:46 a.m. on the Comex in New York. The price headed for the third straight decline, the longest slump since April 4. Through May 10, the metal dropped 14 percent this year.
Leading wealth managers have been switching out of commodities since the start of the year in favour of equities and bonds as they look for yield, a trend which accelerated in April with a major sell-off across the commodities field, led by a collapse in the gold price.
Money managers withdrew $1.27 billion from gold and precious-metals funds in the week ended May 8, according to Cameron Brandt, the director of research for Cambridge, Massachusetts-based EPFR Global, which tracks money flows. This year’s outflows of $20.8 billion are the largest withdrawals since the firm began tracking the data in 2000.
A majority of the 38 analysts surveyed by Bloomberg last month predicted the metal will decline in 2013, ending a 12-year bull run. Billionaire investor Warren Buffett said May 2 that gold has no appeal even after the rout. The drop in global ETP holdings wiped $37.4 billion of value from the assets this year, while more than $4.6 trillion has been added to the value of global equities, data compiled by Bloomberg show.
Lower U.S. inflation expectations, a weak Chinese GDP report, rising copper inventories on the LME and rumours of potential gold reserve sales by distressed European countries such as Cyprus triggered the largest gold spot price decline in 30-years, Dodd Kittsley, global head of ETP research at BlackRock, said.
Physical demand for gold drove an 8 percent gain in prices from a two-year low on April 16. Indian imports reached more than 100 tons in April, now valued at $4.7 billion, and shipments probably will top that again this month, according to refiner MMTC-PAMP India Pvt. The country’s gold imports were 860 tons last year, the London-based World Gold Council estimates. Consumption in China rose 26 percent in the first quarter from a year earlier, the China Gold Association said May 7.
But, despite good demand for gold coins, bars and jewellery following the price collapse, ETP investors remained net sellers into May, which Ole Hansen, head of commodity strategy at Saxo Bank, attributed to institutional accounts.
So, what’s the end game? With banks looking stable and the economy slowly improving, there’s less of a need to hide in the gold market. Fear of another financial crisis has diminished. Ralph Preston, a market analyst and broker at Heritage West Financial in San Diego, Calif., envisions a few scenarios in which gold could shoot higher this year. If the war in Syria spreads, or if North Korea launches an attack on other countries in Asia, it could head back above $1,900. “Owning a little bit of gold is probably not a bad idea,” he says. “But I don’t think we’ll be using it to buy groceries someday.”
- Gold Bears Pull $20.8 Billion as BlackRock Says Buy: Commodities – Bloomberg
- Commodity ETPs suffer record outflows in April-BlackRock – Reuters
- April ETF Flows Show Rising Caution: BlackRock – WSJ
- Gold has steadied since it plunged last month; what’s next? – Calgary Herald
- ETP Landscape – Industry Highlights – BlackRock