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Fast Money & Foreign Objects
Gold has fallen almost 28pc over the last 12 months
By Andrew Critchlow
8:00PM GMT 28 Dec 2013
Gold will finish the year as one of the worst-performing asset classes, bringing to an end a decade-long rally in the precious metal.
Gold has suffered its sharpest fall in 30 years, down almost 28pc over the past 12 months to close 2013 at about $1,200 (£725) an ounce.
That compares badly against other assets, with the S&P 500 up 28pc, the FTSE 100 gaining around 13pc and Brent crude oil futures up about 2.5pc in the same period.
“Equities have won the battle over gold for investors’ money this year,” Ole Hansen, head of commodity strategy at Saxo Bank, said. Last year, Mr Hansen correctly predicted that gold would finish the year at $1,200 and for 2014 he is forecasting that prices may have already bottomed out.
Gold's performance in the last year. Image: Saxobank
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13 Nov 2013
“A year down the line, we could be around $1,250 an ounce,” he said.
Demand for gold had led the charge in resources demand that became known as the commodities “super-cycle”, but no longer.
Gold was the biggest loser after the US Federal Reserve announced that it will taper its bond purchases by $10bn a month from next year.
The metal fell almost 3pc immediately after news of the taper hit the market. Central banks globally are already following the Fed’s lead and easing back on the money printing that has been the primary policy tool to lift the developed world out of recession, and a major factor behind investors seeking higher yields in gold.
“Sentiment is stacked against gold,” said Mark Bristow, chief executive of African-focused gold mining company, Randgold Resources. “Globally, economic policy has been driven by popular politics and not sound business sense.”
Mr Bristow said that not all of the downward pressure on gold prices is due to global economic forces. Over-production is now a major problem, especially among miners operating on low margins.
Despite, falling prices, global output of gold is forecast to increase by 3.5pc to a record 3,000 tonnes next year, up from about 2,900 tonnes this year and 2,860 tonnes in 2012.
“There is a lot of pain ahead,” said Mr Bristow. “A lot of miners are going to have to deal with the market very differently. There is too much unprofitable production and this will have to result in reduced [price] levels.”
Oversupply comes at a critical time, not just in terms of institutional investors cutting their exposure in exchange traded funds (ETFs) but also in traditional jewellery-focused markets such as India. By the end of the third quarter of 2013, almost 700 tonnes of gold had left ETFs as total demand slumped by 21pc, the World Gold Council reported.
According to the investment bank, Macquarie, the ETF sell-off has been just one of the shocks to hit gold this year.
India’s efforts to curtail borrowing against gold purchases and other measures designed to rein in speculation have hit one of the world’s largest markets for physical gold.
Macquarie expects imports to India, usually the world’s highest, to be even lower next year as the Delhi government continues to squeeze the domestic market.
But despite the ever-growing number of reasons for investor caution, gold remains the ultimate hedge against economic turmoil. “The global economy is not as it seems and there is still a lot of risk out there,” said Mr Bristow.
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