GOLD and SILVER prices dropped to new 5 and 6-year lows respectively for US investors on Friday, falling as European stockmarkets lost earlier gains and commodity prices fell to new multi-year lows.
“Gold and silver remain dominated by expectations of US rate hikes,” says one bullion bank’s commodities team in a note.
“Gold has always had a dual nature as a currency and a commodity,” adds Matthew Turner at Australian bank Macquarie separately.
“At present it is not desired in either form. The Fed remains on course to raise rates, while physical markets are lacklustre.”
“To some people,” says Leon Westgate at Chinese-owned ICBC Standard Bank’s London office, “gold is either a pseudo-currency or pseudo religion.
“We view gold as somewhere to park your cash in moments of fear when you don’t know what else to do with it. [So] we believe that gold will likely remain in a bear market going into H2 2015, mainly as a result the continuing lacklustre…environment.”
Crude oil meantime fell further below $50 per barrel in London trade, with copper – to which silver prices correlate when not tracking gold so closely – falling to new 6-year lows.
“Ultimately,” says this week’s analysis from London-HQ’ed consultancy Metals Focus – looking at the People’s Bank of China’s gold bullion reserves update last Friday – “we believe continued Chinese purchases will be supportive for prices at the margin.
“At the same time, however, it is hard to see investors become excited, especially as the news is now priced in and also given conventional assets such as equities and US Treasuries continue to offer better returns.”
Gold, silver and other precious metals funds this week saw $1.1 billion pulled out, according to data from Bank of America Merrill Lynch.
The giant SPDR Gold Trust (NYSEArca:GLD) shed 23 tonnes from the bullion needed to back its exchange-traded shares in the week-ending Thursday – the fastest outflow since July 2013 marked the end of that spring’s gold price crash, and taking the GLD’s holdings to the smallest level since September 2008 at 684 tonnes.
From its 2004 launch to the peak holdings of end-2012, the GLD accumulated an average 3.1 tonnes per week. Gold prices rose a compound weekly average of 0.3% against the Dollar.
Now in mid-2015, “With a positive outlook for global growth, a rapidly strengthening Dollar and hawkish statements from the Fed, investors are seeking returns from other asset classes,” says J.P.Morgan Asset Management’s Nandini Ramakrishnan, quoted by Portfolio Adviser.
Global gold demand won’t outstrip supply until 2017, says ICBC Standard Bank’s Westgate, the first such “deficit” since 2012.
But that forecast “could be partly countered by a decline in central bank purchases and a continuing liquidation of ETFs,” he adds, coupled with an increase in scrap supply in the medium- to long term.”
“With a coming rate hike from the Fed,” says London market-maker and benchmark price participant Societe Generale’s sales desk, “asset managers are clearly re-balancing portfolios.
“Gold ETFs are facing high levels of exits, and physical gold is being dis-hoarded.”
Silver’s largest exchange-traded trust fund, in contrast, continued to hold investor interest this week, with the iShares Silver Trust (NYSEArca:SLV) needing 10,227 tonnes of bullion to back its stock, near a 1-month high and little changed from the start of this year.
