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Gold falls out of favour

By Phoebe Sedgman And Jasmine Ng Time of article published Jun 3, 2015

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Melbourne - Gold is out of favour. Investors cut holdings in bullion-backed exchange-traded products to the lowest since 2009 as surging stock markets from the US to China hurt demand and prospects for rising US interest rates boosted the dollar.

The assets contracted 5.45 metric tons, or 0.3 percent, to 1,594.08 tons as of Tuesday, according to data compiled by Bloomberg. The hoard slumped 39 percent since reaching a record 2,632.52 tons in December 2012, shrinking by 33 percent in 2013 and a further 9.3 percent last year.

World equities surged in 2015 as US stocks reached a record and the main stock gauge in China more than doubled in 12 months. The Federal Reserve has signaled it expects US growth to pick up after a contraction in the first quarter and, while unlikely to raise interest rates this month, it’s left the door open to tightening later this year. Higher rates curb gold’s allure because it usually gives returns only by price gains.

“Gold as an investment tool has been losing its lustre,” said Howie Lee, an investment analyst at Phillip Futures Pte. in Singapore. “Particularly in China, people are looking more at the stock markets rather than buying into the precious metals. Overall, I think the trend will continue.”

Bullion for immediate delivery traded at $1,192.48 an ounce at 7:07 a.m. in London, 0.7 percent higher this year. The Standard & Poor’s 500 Index climbed 2.5 percent in 2015, closing at a record on May 21, while the Shanghai Composite Index soared 52 percent. The Bloomberg Dollar Spot Index added 4.5 percent.

SPDR shrinks

Assets in the SPDR Gold Trust, the largest gold-backed ETP, fell 0.6 percent to 709.89 tons on Tuesday, the lowest since January 14, according to Bloomberg data. The ETP bottomed this year at 704.83 tons on January 7, 48 percent down from its 2012 peak.

Not everyone is selling. Billionaire hedge fund manager John Paulson kept his gold stake in the SPDR as of March 31, maintaining the holding for a seventh straight quarter, according to a government filing last month.

Gold will average $1,220 an ounce in the final quarter of the year, according to the median of forecasts compiled by Bloomberg. Next year, it’s seen at $1,225, the data show.

Central banks also increased their assets in the past five years in a reversal from two decades of selling since the late 1980s. The fifth-biggest holder Russia tripled its hoard since 2005, while Kazakhstan boosted reserves.

Official purchases rose for a 17th quarter in the first three months of the year, according to the World Gold Council. Many central banks are exposed to a small number of reserve currencies and look to gold as a hedge, the council said.

Bloomberg

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