Gold Funds See Unprecedented 31% Slump With World Losing Faith

Investors are dumping gold-backed exchange-traded products at the fastest pace since the securities were created a decade ago, mirroring the steepest price drop in 32 years.

Holdings in the 14 biggest ETPs plunged 31 percent to 1,813.3 metric tons since the start of January, the first annual decrease since the funds started trading in 2003, data compiled by Bloomberg show. The removals erased $69.7 billion in the value of the assets as prices fell by the most since 1981. A further 311 tons will be withdrawn next year, according to the median of 11 analyst estimates compiled by Bloomberg.

ETP investments reached a record $148 billion last year, helping sustain the bull market that drove a more than sixfold increase in prices since 2001 by offering a way to own bullion without needing to store it. The slump shows some investors losing faith in gold as a preserver of wealth after inflation failed to accelerate and the Federal Reserve signaled it may curb stimulus. John Paulson, the biggest investor in the largest ETP, said last month he doesn’t plan to buy more.

“All the bullish factors we had pushing gold higher in the last 12 years are now going into reverse,” said Robin Bhar, a London-based analyst at Societe Generale SA who’s ranked by Bloomberg as the most-accurate precious-metals forecaster over the past eight quarters. “There will be more ETF selling in 2014 as the price goes lower.”

Bear Market

Gold for immediate delivery fell into a bear market, defined as a drop of 20 percent or more, in April and traded at $1,241.30 an ounce today, down 35 percent from the September 2011 record of $1,921.15. Only corn and silver fell more this year among the 24 commodities tracked by the Standard & Poor’s GSCI gauge, which slipped 3 percent. The MSCI All-Country World Index advanced 16 percent, and the Bloomberg Treasury Bond Index lost 2.8 percent.

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http://www.bloomberg.com/news/2013-12-15/gold-funds-see-unprecedented-31-slump-with-world-losing-faith.html