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Why everyone now hates gold
by David Campbell on Mar 19, 2013 at 09:40
Two weeks after Wealth Manager reported that gold shorts had hit a record high but suggested a short squeeze could be on the way, selling pressure has yet to show any signs of abating.
Shorts have continued to mount, standing at 62,035 contracts for 100 troy ounces held short in the most recent Commitment of Traders report versus the then figure of 49,153, and now ‘dumb money’ has got in on the action.
Despite an outbreak of nerves over the weekend, the gold price has barely shifted, rising 0.9% to $1,602. As recently as late February it was trading well above that. Arguably more significant was the leg down in the euro to below $1.30, a three month low.
Gold exchange-traded fund (ETF) holdings are falling at a record pace, with more than 140 tonnes in bullion sold by ETFs this year, and the pace of sales accelerating into March.
A total of $6.8 billion (£4.5 billion) in assets has been removed from the sector year to date – $5.6 billion of that in February alone, according to BlackRock data.
ETF investors have largely held firm in the face of other recent price declines in the past four years, or even added on price weakness, so the decision to cash out as prices tumble has some worried.
‘More and more punters seem to be giving up on gold,’ said Alastair Winter, chief economist at Daniel Stewart Securities.
In the 10 years since the first gold ETF was launched, the sector has become the largest holder of the metal apart from the US and German central banks so a decline in appetite is significant.
With central banks largely sitting out the markets, short of a major upset causing equity appetite to plummet, it is hard to see where potential demand could come from – and that has caused many to downgrade 2013 forecasts.
‘For the first time since 2008, in our view, the investment environment for gold is deteriorating,’ said Nomura analyst Matthew Kates.
‘We expect the gold prices to trade near the $1,500 level over the coming months with further risks to the downside if disinvestment does not reverse quickly. Our analysis suggests that circa $60 billion in net investment demand will be required in 2013 to provide stable gold prices.’