Dubai: Investor sentiment surrounding gold is deteriorating, as speculation is rife that the precious metal is heading for an oil-style collapse, according to analysts.
The latest official data indicated that investors are already fleeing the precious metal, with bar and coin demand falling and exchange-traded funds (ETF) outflows slowing down. At the same time, hedge funds are betting more on the possibility that the prices will fall rather than rise.
According to Ole Hansen, head of commodity strategy at online multi-asset trading and investment specialist Saxo Bank, the sentiment in gold and other metal markets has been “turning increasingly negative” during the past month.
He pointed to the lack of inflationary signs and safe-haven demand, combined with rising bond yields, collapsing emerging market currencies, a rising dollar, and rising expectations of an early US rate hike, as the reasons that have helped trigger an exodus out of gold.
“Nowhere is this clearer than in the futures market, where hedge funds during the past few months have been getting increasingly bearish. As a result, we have seen the combined net position of gold futures and options turn negative for the first time since data began being collected in 2006,” Hansen said in a note sent to Gulf News.
In July alone, holdings in ETF backed by physical gold dropped by 63.6 tonnes. “A monthly reduction of this magnitude was last recorded during [the second quarter of 2013] when the latest major price collapse occurred,” Hansen added.
The latest data from the World Gold Council showed that gold demand in all sectors has been slow. Demand for gold bars and coins dropped by 15 per cent in the second quarter compared to a year earlier. Outflows from gold-backed ETFs also slowed to a trickle – at less than 23 tonnes.
The global price of gold went up as much as 1.2 per cent to its highest level since July 20 at $1,121,40 an ounce, following its lowest slump in more than five years last month at $1,088.05 an ounce.
Analysts predict that gold will continue to struggle to advance over the next few weeks. Saxo Bank has highlighted the “risk of some additional weakness” in the early part of the third quarter before the price can move back up later in 2015.
“We saw and still see the potential of the first US rate hike being a buying opportunity as it will remove some of the uncertainty that has been built up during the past couple of years,” wrote Hansen.
“A sustained break below $1,090 an ounce, however, will trigger a downward revision of our end-of-year forecast, which currently stands at $1,275 an ounce.”
“For the time being, short sellers remain happy below $1,105 an ounce and gold’s best and perhaps only support seems to come from the fact that so many hate it. This could lead to a rapid bout of short covering on a wide variety of events, reasons or triggers.”