Gold extends losses, set for worst decline since 1981

Gold extended losses and fell on Tuesday, heading for the biggest decline in more than three decades and first annual drop in 13 years as investors lost faith in the metal as a store of value. Assets in the SPDR Gold Trust, the biggest bullion-backed ETP, fell to the lowest since January 2009. Chinas net gold imports from Hong Kong, a source of strength amid price drops, also fell in November.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in February traded at $1 999.30 per troy ounce at 6:40 GMT, down 0.37%. Prices shifted in a daily range between $1 194.10 and $1 201.20 per troy ounce. The precious metal lost 1.2% on Monday, extending its annual decline to 28%.

Gold sank to a six-month low of $1 186.50 per troy ounce on December 19 after policy makers announced their decision to reduce Fed’s bond purchases by $10 billion to $75 billion. The precious metal was further pressured after a recent series of unexpectedly upbeat economic data from the US supported Fed’s tapering decision and sent equities rallying.

Fed’s balance sheet has swelled to almost $4 trillion as an attempt to revive the US labor market and put millions of unemployed Americans back to work. The central bank’s asset purchases will be divided between $40 billion in Treasuries and $35 billion in mortgage bonds, Bernanke said.

Christine Lagarde, the International Monetary Fund’s managing director, said the IMF is raising its outlook for the US economy as the reduction in Fed’s bond purchases and a budget deal in Washington eased concerns that the US economic growth might not be sustainable.

Edward Meir, an analyst at INTL FC Stone, said in a report, cited by CNBC: “We dont have much to add to our short-term view on gold. The complex will likely remain under pressure going into the New Year and we think its just a matter of several more trading days before the June 2013 low of $1,179 is taken out.”

Holdings in gold-backed exchange-traded products fell by 33% this year to the lowest since 2009 as investors lost faith in the metal as a store of value as equities rallied, and inflation failed to accelerate. According to data compiled by Bloomberg, this years outflows of 864.8 tons were more than last three years combined inflows.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETP, fell by 0.37% on Monday to 798.22 tons, down from 801.22 tons on Friday, data on the website showed. The fund has lost 41% of its holdings in 2013. Billionaire hedge-fund manager John Paulson who holds the biggest stake in the SPDR Gold Trust told clients on November 20 that he wouldn’t invest more money in his gold fund because it isn’t clear when inflation will accelerate.

According to the median estimate of 11 analysts surveyed by Bloomberg, another 311 tons will be withdrawn from gold-backed exchange-traded products in 2014.

Data by the US Commodity Futures Trading Commission showed on Monday that money managers reduced their net long positions on gold and silver, or wagers that prices will rise, in the week ended December 24.

Meanwhile, Chinas net gold imports from Hong Kong fell by 42% to below 100 tons in November amid easing demand from jewelers and retail investors after recent strong purchases. The country however is set to overtake India as the biggest importer this year as demand is expected to have risen by 29% to 1 000 tons, according to estimates by the World Gold Council.

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