Gold funds hit 2008 level ahead of US Fed action
Holdings of gold in exchange traded funds (ETFs) around the world have fallen back to levels last seen before the global financial crisis in 2008
.
Traders had bid the price of gold higher partly out of fear that the Federal Reserve's aggressive easy-money policies would lead to inflation and weaken the US dollar Photo: Alamy
The once-popular GLD fund has lost 57pc of its value over the last year with outflows of $25bn (£15bn) as investors brace for a cycle of monetary tightening by the US Federal Reserve, typically a headwind for gold and commodities.
“The combination of rising real yields and fading inflation fears has proved a toxic mix,” said Julian Jessop from Capital Economics.
The gold price crashed from more than $1,700 an ounce last January to $1,190 in December before bouncing back slightly, badly mauled by growing confidence in US recovery and a stronger dollar.
Technical traders say gold may have stabilised after “a double bottom” at a key inflexion point near $1,200, a level where large numbers of mines become unprofitable and start having to close.
“Physical buyers may view $1,200 as an attractive entry point,” said James Steel from HSBC.
“Physical buyers may view $1,200 as an attractive entry point,” said James Steel from HSBC.
Yet there is a risk that the downward slide could prove self-fulfilling as more producers sell their output on the futures markets, replicating the hedging pattern that blighted the market in the 1990s.
JP Morgan says interest in gold has evaporated to the point where speculative long and short positions monitored by the US Commodity Futures Trading Commission have dropped to the lowest since early 2006.
The wild card is China, still buying fistfuls of physical gold. UBS estimates that the country imported 1,500 tonnes last year, smashing former records.
The great unknown is whether this will last as China reforms its financial system after the Third Plenum, which may open the door to other assets. Analysts are watching for any sign that Chinese appetite for gold is starting to fade as well.
Mr Jessop said the worst was probably over as India prepares to lift import restrictions and global equity prices move too far out of alignment with precious metals. “We see plenty of scope for gold to bounce back in 2014.
The bursting of the bitcoin bubble may even make gold look more appealing to Chinese investors. We reiterate our view that the price of gold will revisit $1,400, at least, in 2014, and probably go higher,” he said.
JP Morgan says interest in gold has evaporated to the point where speculative long and short positions monitored by the US Commodity Futures Trading Commission have dropped to the lowest since early 2006.
The wild card is China, still buying fistfuls of physical gold. UBS estimates that the country imported 1,500 tonnes last year, smashing former records.
The great unknown is whether this will last as China reforms its financial system after the Third Plenum, which may open the door to other assets. Analysts are watching for any sign that Chinese appetite for gold is starting to fade as well.
Mr Jessop said the worst was probably over as India prepares to lift import restrictions and global equity prices move too far out of alignment with precious metals. “We see plenty of scope for gold to bounce back in 2014.
The bursting of the bitcoin bubble may even make gold look more appealing to Chinese investors. We reiterate our view that the price of gold will revisit $1,400, at least, in 2014, and probably go higher,” he said.
