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Institutional investors step back from gold

Long price slump for the precious metal forces investors to sell

Long price slump for the precious metal forces investors to sell

Gold prices have dropped below the $1,200 mark for the first time as institutional investors shed their interests. It has been the precious metal’s longest slump in four years and it shows no sign of relenting. Gold futures are also dropping at alarming rates.

At the end of June, gold was losing close to $200 a day, and had already lost 28 percent of its value in 2013. “The market is facing headwinds as global equities continue their path higher, taking institutional investment away from the gold market and central-bank stimulus is gradually withdrawn from the US economy,” explains Steve Scacalossi, vice-president at TD Securities. “Gold is going to struggle in the strong-dollar environment.”

Gold is one of the many investments that suffered in the wake of Ben Bernenke’s strategy announcement to ease federal spending.

“Nobody wants to own gold anymore,” Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago, told Business Day. “We’re getting a continuous grind down with heavy liquidation. All the news about the US is not helping, and the markets are looking forward.”

According to the SPDR Gold Shares, the largest physically backed exchange-traded fund in the world, there have been sharp outflows as gold prices dropped. Though the identities of those selling their gold will not be known the Securities and Exchange Commission releases the data, 47 percent of investors who worked with SPDR Gold Shares were institutional. Investors initially turned to gold because of its strong gain over the past few years.

With Bernanke’s speech abating inflation concerns, at least in the short term, institutional investors have had to find alternatives to hedge against rising inflation. “The recent market view is that inflation has not been a concern. I think that’s (one of) the real drivers, even outside of supply and demand statistics, which over the long run are the most important movers of gold. In the near term there’s been recalibration of inflation expectations so some of those investors might be more tactically thinking, ‘I don’t necessarily need to hold that insurance policy today.’ So that has moved the more tactically focused money to sell gold,” David Mazza, head of exchange-traded fund investment strategies for the Americas at State Street.

 

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