Recent rallies fail to put shine back on gold

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.