New York: Investors are back to dumping precious metals as gold trades near five-year lows and banks including Barclays Plc forecast more price declines.
Outflows from US exchange-traded funds backed by precious metals have reached $1.12 billion (Dh4.11 billion) so far in November, heading for the first monthly loss since July, data compiled by Bloomberg show.
Gold prices have fallen for four straight weeks as Federal Reserve Chair Janet Yellen signalled that officials are getting closer to raising US interest rates, cutting bullion’s appeal as a store of value. Holdings in futures contracts have dropped to a five-week low.
Until a few weeks ago, investors had poured money into precious-metal ETFs for three months, the longest stretch since 2012. Bulls were anticipating that slowing global economies, especially in China, would deter Fed policymakers from raising rates.
Signs of resilience in the US labour market mean that those expectations are fading, with the chances of higher borrowing costs in December seen at 66 per cent, according to Fed-fund futures. That’s up from 35 per cent just a month ago. American payrolls in October surged by the most this year, government data showed Nov. 6.
“The situation reversed with the strong jobs report and some little hawkish statements from Yellen,” said Donald Selkin, who helps manage about $3 billion as chief market strategist at National Securities Corp. in New York.
“The dollar’s getting stronger because of the anticipation that the Fed might make a move next month. Since gold is priced in dollars, it’s negative. Prices have dropped tremendously. That’s a result of people pulling money out.”
Gold futures in New York have tumbled 8.6 per cent since the slump began in mid-October, touching $1,073 an ounce on November 12, the lowest since February 2010.
Higher rates, low inflation and selling from exchange-traded products will continue to pressure gold, analysts at Barclays said Thursday, forecasting the metal would average $1,030 in next year’s fourth quarter. Goldman Sachs Group Inc. is also bearish.
Bullion is heading for a third straight annual decline, the longest slump since 1998. Gold loses out when monetary policy tightens because the metal doesn’t offer interest or pay dividends, unlike competing assets.
Open interest in futures, a tally of outstanding contracts, on Thursday reached the lowest since Oct. 5, exchange data compiled by Bloomberg show. The measure has fallen 6.7 per cent in November, heading for the biggest monthly drop in a year.
Other precious metals are also suffering. Platinum futures in New York fell for 12 straight sessions through Friday, the longest slump since 2002. Palladium prices tumbled 12 per cent last week, the biggest drop since 2011. The metal’s 60-day historical volatility last week reached the highest since February 2012. Silver has dropped for four consecutive weeks.