GOLD ON TRACK FOR ANOTHER ANNUAL LOSS / THE FINANCIAL TIMES

Gold on track for another annual loss

Henry Sanderson

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©Bloomberg

 

The price of gold fell to its lowest level since early 2010 before rebounding as the euro strengthened against the dollar following pledges by the European Central Bank to continue monetary easing.

 

Spot gold fell to $1,046.60 a troy ounce before ending the day at $1,060. Gold has fallen 10 per cent since its October peak, as investors continued to pull money out of gold-backed exchange traded funds.

Assets in the world’s largest gold-backed ETF, the SPDR Gold Shares, fell 2.41 per cent to 639.02 tonnes on Wednesday, the lowest level since September 2008, according to data on its website.

Gold is on track for its third straight annual loss as prospects of a US rate rise and slowing growth in China provide few incentives to buy the metal. The prospect of higher official US borrowing rates bolsters the return on savings and also reduces inflation concerns, hurting sentiment for gold.

The precious metal has also failed to react to bouts of global uncertainty this year, from China’s stock market rout to the terrorist attacks in Paris, which have dented its traditional reputation as a safe haven asset.

 

Speculators have also built up large positions in US gold futures betting on a further price decline, with a record 16,700 short contracts taken out in the week to the end of November 24, according to the US Commodity Futures Trading Commission.

“People are positioning themselves with the expectation of the rate rise. The short gold position is a rather crowded trade at the moment,” Ross Norman, a broker Sharps Pixley in London, said.

Analysts now forecast gold could fall below $1,000 a troy ounce in the coming months, a level that will increase pressure on gold miners. Randgold Resources bases its business on gold at $1,000 a troy ounce, its chief executive Mark Bristow has said.

 

 

A slow series of rate hikes by the Fed is still not priced into the gold market, according to ABN Amro. The Dutch bank forecasts that a rise in US Treasury yields could push gold prices towards $900 a troy ounce in 2016.

Investors who were responsible for driving gold up to its peak at more than $1,900 in September 2011 through purchases of ETFs are now selling gold.

Once briefly the biggest ETF in the world in 2011, the SPDR Gold Shares has lost 11 per cent this year and 39 per cent over the past three years.

In the year to date, investors have sold 2.25m ounces in the fund, worth about $2.4bn at current prices, leaving it holding $22.42bn worth of gold. That is down from its peak of $77.5bn in 2011.

In contrast, however, central banks continue to buy gold. They added 175 tonnes in the third quarter, the biggest amount since the same quarter last year, according to the World Gold Council, an industry body.