Gold Assets Head for Worst Monthly Drop Since ‘11 on Rebound

by on January 29, 2013 5:41 am BST

Gold holdings in exchange-traded products are poised for the biggest monthly decline in more than a year as signs that the global economic recovery is strengthening curb demand for haven investments.

Assets contracted 0.8 percent so far in January, the largest decrease since December 2011, according to data compiled by Bloomberg. The holdings, which reached a record in December, dropped to a two-month low of 2,610.272 metric tons yesterday.

Analysts from Credit Suisse Group AG to Goldman Sachs Group Inc. are calling for gold to peak in 2013 after a 12-year rally as the global economy rebounds. U.S. durable-goods orders rose in December for an unprecedented fourth consecutive month, data showed yesterday, while China’s economy snapped a seven-quarter slowdown in the final three months of 2012. The countries are the world’s two largest economies.

“As the global economy shows more signs of growth, the incentive to hold gold is reduced,” said Feng Liang, an analyst at GF Futures Co., a unit of China’s third-biggest listed brokerage. “There will still be long-term holders of gold like central banks, and that will keep prices supported,” Feng said from Guangzhou, China.

Gold for April delivery gained as much as 0.4 percent to $1,661.50 an ounce, and traded at $1,660.40 at 1:11 p.m. in Singapore. Futures fell 0.9 percent this year, lagging behind gains in silver, platinum and palladium, metals used mainly in industry that benefit from faster economic growth. ETP holdings of silver, platinum and palladium expanded in January.

Record Holdings

ETPs trade like shares and enable investors to hold commodities without taking physical delivery. Assets in gold- backed products have risen every year since 2004, expanding 12 percent in 2012 as futures rose 7 percent.

While the holdings have dropped this month, they remain within 1 percent of the record 2,632.5 tons reached on Dec. 20. Morgan Stanley forecasts that investors will add a net 100 tons of gold to ETPs this year, and has forecast higher average prices each quarter of 2013 as central banks maintain stimulus and expand holdings, according Jan. 24 report.

Central banks in South Korea, Brazil and Russia expanded gold reserves last year, according to International Monetary Fund data. Countries bought 373.9 tons in the first nine months of 2012, according to the World Gold Council, which said full- year purchases would probably be at the lower end of a range from 450 to 500 tons. Central banks bought 456 tons in 2011.

U.S. Recovery

Gold’s bull market is over as the U.S. economy pick up, Allan Hochreiter (Pty) Ltd. Chief Executive Officer Rene Hochreiter, the top forecaster in the London Bullion Market Association’s 2012 poll, said this month. The metal’s appeal is set to diminish as so-called fear trades fade, according to Tom Kendall, head of precious-metals research at Credit Suisse.

The euro-area crisis, which had driven speculation that the common currency may fragment, has shown signs of abating as yields on sovereign debt of countries from Spain to Greece decline. European Central Bank President Mario Draghi said this month that the worst may be over for the region.

Gold futures are poised for a fourth monthly decline in January, the worst run since the period to last May. The MSCI All-Country World Index (MXWD) of shares has risen 12 percent over the past year, reaching the highest level since May 2011 on Jan. 25.

Futures sank to $1,626 an ounce on Jan. 4, the lowest price since August, after minutes from the Federal Open Market Committee’s December meeting showed that U.S. central bankers debated an end to asset purchases this year. Bookings for U.S. goods meant to last at least three years advanced 4.6 percent last month, a Commerce Department report showed yesterday.