Gold headed to worst year since 1981

Some investors lost faith in the metal as a store of value amid a rally in equities and an improving economy

Dec 30, 2013 @ 8:32 am (Updated 4:23 pm) EST

Gold fell in New York Monday for the first time in four sessions, set for its biggest annual loss in three decades, as an improving economy cut demand for a protection of wealth. Silver futures retreated.

After having slid to $1,186 an ounce on Dec. 19, near this year's low set in June, bullion rebounded to a one-week high of $1,218.90 on Dec. 27. Global equities traded near the highest level since 2007 before reports this week that may show improvements in U.S. housing and manufacturing.

Gold tumbled 28% this year, set for the worst annual plunge since 1981. Some investors lost faith in the metal as a store of value amid a rally in equities and an improving economy that prompted the Federal Reserve to pare its $85 billion in monthly bond purchases. Holdings in exchange-traded products backed by bullion dropped 33 percent this year to the least since 2009, data compiled by Bloomberg show.

“The market is fearing the impact of tapering,” Peter Fertig, the owner of Quantitative Commodity Research Ltd. in Hainburg, Germany, said Monday. “You have firmer equity markets. There's currently no crisis and nothing that would induce investors to rush into gold.”

Bullion for February delivery fell 0.9 percent to $1,203.60 by 7:36 a.m. Monday on the Comex in New York. Futures trading volume was 29 percent below the average for the past 100 days for this time of day, data compiled by Bloomberg showed. Gold for immediate delivery slipped 0.7 percent to $1,204.49 in London.

FED STIMULUS

The Fed will probably reduce its bond purchases in $10 billion increments over the next seven meetings before ending the program in December 2014, according to the median estimate of economists surveyed by Bloomberg this month.

Gold is set for the first annual drop in 13 years. Holdings in gold-backed ETPs declined 4.9 metric tons to 1,767.1 tons on Dec. 27, the lowest since November 2009, data compiled by Bloomberg show.

“The perennial bulls have pulled their horns in,” said Jonathan Barratt, chief executive of Barratt's Bulletin in Sydney. “The underlying theme has been the unanticipated weight of selling from the ETF market.”

Silver futures for March delivery dropped 2% to $19.655 an ounce in New York, tumbling 35% this year for the biggest slump since 1981. Palladium futures for March delivery lost 0.1% to $711.10 an ounce. Platinum for April delivery declined 1.1% to $1,364 an ounce.

(Bloomberg News)

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