You are here

Gold gets ignored in Greek meltdown with fewest bulls since 2006

Gold's fallen so far out of favor that even as Greece lurches closer to a possible exit from the euro, investors are shunning the metal known for being a haven.

[NEW YORK] Gold's fallen so far out of favor that even as Greece lurches closer to a possible exit from the euro, investors are shunning the metal known for being a haven.

More than US$300 million has been wiped from the value of exchange-traded products backed by the metal in the past month, data compiled by Bloomberg show. Money managers are holding the smallest net-bullish wager since 2006, US government figures show.

As pressure grows on Greece to come up with a plan to stay in the euro after voters said no to more austerity, gold's volatility is tumbling and prices are languishing near a three- month low. Bullion has slumped about 40 percent since reaching a record in 2011 as investors ignored the metal in favor of equities and the dollar.

"Too many of the people who bought gold late in the rally have been scared off," said Peter Sorrentino, a Cincinnati- based fund manager at Huntington Asset Advisors Inc. who exited gold in 2014. "Regardless of the fundamentals, regardless of what's happening now, people simply won't go back to it." Huntington oversees US$1.7 billion.

Futures fell 1.5 per cent this year to US$1,166.90 an ounce in New York. The Bloomberg Commodity Index of 22 raw materials fell 4.9 per cent in that time, while the MSCI All-Country World Index of equities rose 0.9 per cent. The Bloomberg Dollar Spot Index jumped 5.3 per cent.

The net-long position in gold declined 55 per cent to 21,480 futures and options in the week ended June 30, according to US Commodity Futures Trading Commission data released Monday. That's the lowest since October 2006, and the biggest cut in holdings since the data begins in June 2006.

Assets in ETPs fell for six straight sessions to 1,589.3 metric tons as of July 6, according to data compiled by Bloomberg. That was the longest stretch of declines since June 3.

While money managers ignored the precious metal's allure as a haven, demand from Greek customers for Sovereign gold coins was double the five-month average in June, the UK Royal Mint said June 29. In the US Mint, gold coin sales in June climbed to a five-month high of 76,000 ounces.

London-based BullionVault said customers added 1.4 million tons of gold to their account during the first half of this year, the biggest increase since 2012.

"Global physical demand has been pretty reasonable," said Michael Cuggino, the president of Permanent Portfolio Family of Funds Inc in San Francisco, which manages US$4.6 billion, with about 20 per cent allocated to gold. "We believe gold continues to be part of a long-term wealth creation and maintenance strategy." Gold sank for four straight quarters through June 30, the longest stretch since 1997. It's been more than two years of disappointment for bulls who had been piling into ETPs backed by the metal, accumulating a record hoard by the end of 2012. Last month, the holdings fell to the lowest since March 2009.

The Federal Reserve's plan to boost US interest rates is driving up the dollar, curbing bullion's appeal as an alternative investment, according to Barnabas Gan, an economist at Oversea-Chinese Banking Corp. in Singapore.

Prices will drop an additional 11 per cent by the end of 2015, reaching US$1,050, a five-year low, predicts Mr Gan, the most-accurate of 20 precious-metal forecasters in the past two years, according to Bloomberg Rankings.

"If we continue to see forward progress in the global economy, if the Fed continues to march towards interest-rate increases, you would expect gold to languish in those circumstances," Kevin Caron, a Florham Park, New Jersey-based market strategist at Stifel Nicolaus & Co, which exited gold in 2012. Stifel manages about US$170 billion.