Gold bulls were dealt another blow as holdings in the world’s biggest bullion fund posted the biggest slump in almost five years. Prices dropped.
Holdings in the SPDR Gold Trust, the largest exchange- traded product backed by the metal, shrank 2.4 percent on Wednesday to 639.02 metric tons, data on the fund’s website show. That’s the biggest tumble since January 2011. Assets are at the lowest since September 2008.
Investors are dumping bullion amid mounting speculation the Federal Reserve will raise U.S. interest rates this month and Chair Janet Yellen said on Wednesday that she’s confident in the outlook for economic growth, buoying the dollar. Gold prices in New York dropped to a five-year low on Thursday. Higher rates cut the appeal of bullion because it doesn’t pay interest, unlike competing assets.
“The conventional-wisdom argument is that if rates go up, you should sell gold,” said Michael Cuggino, the San Francisco- based president and portfolio manager at Permanent Portfolio Family of Funds Inc., which oversees about $3.5 billion. “Investors think: Why do you need to own it? It doesn’t pay anything. There’s also a lack of inflationary pressure and a stronger dollar. And those are collectively putting a hurt on gold.”
Gold futures for February delivery dropped as much as 0.8 percent to $1,045.40 an ounce on the Comex, the lowest level since 2010, and traded at $1,046.60 at 9:29 a.m. in Singapore. Most-active prices lost 12 percent this year.
Goldman’s View
Goldman Sachs Group Inc. forecast gold at $1,000 in a year as rates climb, according to a Nov. 18 report. Prices will average $995 next year amid a strong dollar, according to Citigroup Inc. analysts including Ed Morse and Aakash Doshi. Speculators boosted their net-short position to 14,655 contracts in gold futures and options in the week to Nov. 24, the most since the U.S. government data begins in 2006.
The bears are being rewarded with prices poised for a third straight annual drop. More than $10 billion was wiped from the value of global gold ETPs this year. Bets that the Fed will soon raise borrowing costs have buoyed the dollar and cut the appeal of precious metals as alternatives. There’s a 72 percent chance that the central bank will increase rates at its Dec. 15-16 meeting, Fed-fund futures show.
Still, now that gold prices have fallen near the metal’s cost of production, investors with a “strong stomach” should consider building a “longer-term position” in bullion, which will benefit when inflation eventually picks up, Cuggino said.
To contact the reporter on this story: Millie Munshi in New York at mmunshi@bloomberg.net To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net Millie Munshi, Richard Stubbe
