Gold reaches lowest since June on way to biggest rout since ’81

December 31, 2013 03:47 AM

Gold, heading for the biggest slump in three decades, reached the lowest price since June as an improving economy cut demand for wealth protection. Silver prices touched the lowest in more than four months.

Bullion futures for February delivery (COMEX:GCG14) fell 29% this year to $1,186.90 an ounce at 9:12 a.m. on the Comex in New York, after touching $1,181.40, the lowest since June 28. 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 38% in 2013 to $18.88 an ounce, heading for the biggest annual slump since 1981.

Assets in exchange-traded products backed by gold fell 33% 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% 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.

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.”

Silver is the second-worst performer in the S&P GSCI Spot Index of 24 commodities, which declined 2.3%. The MSCI All-Country World index of equities climbed 20%, while the dollar rose 3.4% against a 10-currency basket. The Bloomberg Treasury Bond Index fell 3.2%.

Paulson, Soros

Paulson, the largest holder in the SPDR Gold Trust, the biggest 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 assets are at 1,764.1 tons, dropping in 2013 after expanding every year since the first product was listed in 2003. About $73.7 billion was erased from the value of holdings as prices sank, data compiled by Bloomberg show. The SPDR Gold Trust fell 41% this year to 798.22 tons, the lowest since 2009, according to data on the fund’s website.

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% this year to 19,377.5 tons, according to data compiled by Bloomberg. Palladium assets climbed 15%, while platinum holdings surged 71%, data show.

China Demand

Consumption in China, poised to overtake India as the biggest buyer this year, may increase 29% 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.

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% next year from 1.7% in 2013, according to economist estimates compiled by Bloomberg.

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