Gold traders turned bearish for the first time in a month as investors reduced holdings in exchange-traded products for an unprecedented 17th consecutive week and India, the biggest buyer, announced curbs on imports.
Eighteen analysts surveyed by Bloomberg expect prices to fall next week, with 14 bullish and four neutral, the largest proportion of bears since May 17. Investors sold 497.2 metric tons valued at about $22 billion through ETPs since Feb. 8 and the 2,117.96 tons left is the least they have held since March 2011, data compiled by Bloomberg show.
Bullion is on track for the first annual drop since 2000 as some investors lose faith in it as a store of value. While the slump into a bear market in April hurt billionaire hedge fund manager John Paulson and producer Newcrest Mining Ltd., it spurred purchases of coins and jewelry worldwide. That demand may be threatened in India after the nation raised gold import taxes to contain a record current-account deficit.
“Sentiment is very bleak,” said Andrey Kryuchenkov, a commodity strategist in London at VTB Capital, a unit of Russia’s second-largest lender. “The Indian import tax hike is concerning and it’s obviously not helping sentiment. Investors are basically on the sidelines. They don’t want to do anything and are still spooked.”
The metal fell 17% this year to $1,389.93 an ounce and is trading 28% below the record $1,921.15 set in September 2011. The Standard & Poor’s GSCI gauge of 24 commodities dropped 2.2% since January started and the MSCI All-Country World Index of equities rose 7.3%. Treasuries lost 1.4%, a Bank of America Corp. index shows.
India raised the import duty to 8% from 6% on June 5 and the central bank also further restricted shipments. Overseas purchases slid to an average of $36 million a day in the 14 business days through June 7, compared with an average $135 million a day in the 13 days through May 20, Raghuram Rajan, chief economic adviser in the Finance Ministry, said June 11. The All India Gems & Jewellery Trade Association has asked the government for a discussion on reversing the tax increase.
The move to slow demand comes amid the worst drop in ETP holdings since the first product was listed in 2003. Assets fell for 17 weeks through June 7 and are down 17.9 tons so far this week. Paulson, the largest investor in the SPDR Gold Trust, the biggest ETP, had a 13% loss in his Gold Fund last month. That takes the decline since the start of the year to 54%, according to a copy of a letter to investors obtained by Bloomberg News.