x Abu Dhabi, UAETuesday 16 January 2018

Investors no longer need a shield of gold

Metal price drops 5 per cent as news trims its hedge value

Global markets have received much news that in most quarters was taken as positive, with most European banks passing their stress tests and US economic indicators looking up for a change. But one group looked at the developments with a frown: gold bugs. The price of gold, which hit a record of $1,266.50 an ounce on June 21, is down almost 5 per cent this month as investors see less of a need to buy the precious metal as a protection from risk.

Bullion dropped as low as $1,182.40 an ounce yesterday and holdings in the world's biggest gold-backed exchange-traded fund, or ETF, slid to its lowest since June 9. Investors around the world flocked to gold in the depths of the financial crisis as a hedge against the considerable volatility and, at times, negative outlook in the equity markets. The events of the last couple of weeks have created a sense of relative calm.

"Gold prices are likely to remain bumpy" in coming weeks, said Tobias Merath, the head of commodity research at Credit Suisse, told Bloomberg. While some bullion holders are selling the metal to lock in gains, "more longer-term-orientated investors are now slowly returning to the market," Mr Merath said. Assets in the SPDR Gold Trust, the biggest ETF backed by bullion, declined 0.3 tonnes to 1,301.74 tonnes yesterday, the company's website says.

Global bullion ETF holdings are up by 219,000 ounces so far this month, heading for the smallest gain since February, after climbing 4.77 million ounces in May, the UBS analyst Edel Tully said yesterday in a report. Assets grew by 273.8 tonnes in the second quarter, the second-largest quarterly inflow ever, the World Gold Council said in a report. "Over the course of last week, ETF investors liquidated 397,000 ounces, marking the most severe weekly sell-off since the beginning of January," Mr Tully said. "Current sentiment towards gold is decidedly unsure and cautious."

* with Bloomberg