Recent rallies fail to put shine back on gold

PUBLISHED : Wednesday, 02 July, 2014, 1:45am
UPDATED : Monday, 07 July, 2014, 11:03pm

The rising value of gold this year has not translated into more buyers.

As prices rose 10 per cent from the end of December, the best start to a year since 2010, investors pulled US$562 million from United States exchange-traded funds backed by precious metals by the end of last week, extending a holdings slump that began early last year.

That compares with a US$47.6 billion inflow for equity funds in the first six months of this year as the MSCI All-Country World Index rose 4.9 per cent.

While gold's appeal as a haven had received a boost amid tensions in Ukraine and Iraq, the gains would be temporary, said Barclays and Goldman Sachs. Prices dropped 28 per cent last year, the most since 1981, as investors lost faith in the metal as a store of value.

"Gold is pretty much unloved because investors seem to be mesmerised by other assets," said Michael Gayed, the chief investment strategist at Pension Partners. "Many have failed to notice the fact that gold has shown a strong performance this year, and it seems that the 2013 slump is still fresh in people's minds."

Investors removed about US$143 million from precious metals funds last month, the third consecutive decline that capped an outflow of US$1.34 billion for the second quarter. At the same time, gold futures have risen 3 per cent since the end of March, after gaining 6.8 per cent in the previous three months, posting the longest run of quarterly advances since 2011.

"Gold's recent gains are unlikely to last over the longer term," Barclays said in a report on Monday. "If and when geopolitical tensions ease, we continue to expect gold to return to its downward trajectory."

Prices will average US$1,250 an ounce in the third quarter, about 5.4 per cent less than now, according to the median of 15 estimates. Futures for August delivery closed at US$1,322 on the Commodity Exchange in New York on Monday.

After a surge in physical purchases earlier this year in Asia, demand is slowing globally. Shipments into India probably fell 77 per cent in the first half of the year, said the All India Gems and Jewellery Trade Federation. Sales of American Eagle gold coins by the US Mint this year have totalled 266,000 ounces, 58 per cent less than in the first six months of last year and the lowest for the period since 2008.