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Gold Bull Run Seen Over as Bear Drop Frays Faithful: Commodities

By Whitney McFerron, Maria Kolesnikova and Glenys Sim - May 1, 2013


Gold’s longest winning streak in at least nine decades is poised to end as diminishing trust in the metal’s ability to preserve value spurred a majority of analysts to predict the first annual retreat since 2000.

Prices will close the year at $1,550 an ounce, 7.5 percent less than at the end of 2012 and the biggest drop since 1997, according to the median of 38 estimates compiled by Bloomberg. Investors are selling bullion held through exchange-traded products at the fastest pace on record, hedge funds accumulated their second-biggest bearish bet ever and futures had their biggest two-day drop in 33 years last month.

Bullion slumped into a bear market in April even as central banks printed money on an unprecedented scale, Europe’s debt crisis spread and the International Monetary Fund made a fourth consecutive cut to its 2013 economic growth forecast. Gold’s drop at a time of record highs in U.S. equities underscores how some investors have lost faith in the surge that drove prices as much as seven times higher over the 12-year bull run.

“It’s the end of an era,” said Michael Haigh, the head of commodities research at Societe Generale SA in New York who correctly predicted the collapse a month ago. “ETF flows and hedge fund flows have gold changing direction for the first time in a long, long time. Prices are going to be dropping.”

Equity Index

Gold fell 13 percent to $1,454.55 in London this year and reached a two-year low of $1,321.95 on April 16. It would have to rally 15 percent to rise for a 13th year. The Standard & Poor’s GSCI gauge of 24 commodities retreated 5.2 percent since the start of January, with gold the fourth-worst performer after silver, lead and copper. The MSCI All-Country World Index of equities rose 8 percent and a Bank of America Corp. index shows Treasuries returned 1 percent.

Twelve consecutive annual gains have been matched by few other assets. U.S. Treasuries gave investors returns for at least 16 years through 1993 and Bank of America’s Global Broad Market Index of bonds advanced every year since 2000.

The value of gold owned through ETPs fell $37 billion to $106.1 billion since October as prices slumped and investors sold metal, according to data compiled by Bloomberg. The record 2,632.5 tons they held in December exceeded all but two of the world’s central-bank reserves and the 356 tons disposed of since then is equal to about 18 months of U.S. mine output.

Lower Prices

Institutions own about 50 percent of the 1,078 tons in the SPDR Gold Trust (GLD), the biggest ETP, and they may sell about half of it as prices drop and investors favor equities, Deutsche Bank AG said in an April 26 report. Bullion declined 25 percent from its record $1,921.15 in September 2011 as the MSCI (MXWD) All-Country World Index advanced 26 percent.

Societe Generale is predicting a fourth-quarter average of $1,375, the lowest for the period in three years. Goldman Sachs Group Inc., Barclays Plc, Credit Suisse Group AG and Morgan Stanley are also among those forecasting lower prices and just 10 of the 38 analysts surveyed by Bloomberg expect gold to gain for a 13th year. While Goldman ended a recommendation to sell on April 23, the bank said further declines are likely.

Prices rallied 10 percent since reaching a two-year low as the slump spurred purchases of bullion coins and jewelry. The U.S. Mint ran out of its smallest gold coin last month and sales across its products in April were the highest since December 2009. The U.K. Mint said it is increasing output after demand more than tripled and the Perth mint stayed open through the weekend to meet orders that reached a five-year high.

MORE - http://www.bloomberg.com/news/print/2013-05-01/gold-bull-run-seen-over-as-bear-drop-frays-faithful-commodities.html