Gold wipes out $560 billion from central banks’ reserves

Investors are dumping gold funds at the fastest pace in two years in favour of equities, compounding a slump that has wiped $560 billion from the value of central bank reserves.

Source from (Khaleej Times): http://www.khaleejtimes.com/biz/inside.asp?xfile=/data/market/2013/April/market_April57.xml&section=market
Published: April 19, 2013


Gold bars are seen at the Czech National Bank in Prague. Gold 
funds have suffered net outflows of $11.2 billion so far this year. 
— Reuters

Exchange-traded products linked to gold dropped $37.2 billion in 2013 as the metal reached a two-year low on Tuesday. Gold funds suffered net outflows of $11.2 billion this year through April 10, the most since 2011, while global and US equity funds had net inflows of $21.25 billion, according to Cambridge, Massachusetts-based EPFR Global.

Central banks are among the biggest losers because they own 31,694.8 metric tonnes, or 19 per cent of all the gold mined, according to the World Gold Council in London. After rallying for 12 straight years, the metal has tumbled 28 per cent from its September 2011 record of $1,923.70 an ounce. Growing economies and corporate profits, along with slowing inflation, boosted global equities by $2.28 trillion this year at the expense of the traditional store of value, according to data compiled by Bloomberg.

“There’s a perception that risk has been lessened, and with that, investors are looking for assets that either generate income or have growth potential, neither of which gold has,” Anthony Valeri, a market strategist with LPL Financial Corp in San Diego, which oversees $350 billion. “We’ve seen a grab for yield, and without a yield, gold has been left out.”

Gold advances as plunge lures buyers Gold advanced for a second day in London on speculation that the biggest slump in three decades will spur increased purchases from investors and consumers. Futures declined in New York. Bullion has lost 17 per cent in 2013 after rising sixfold in a 12-year rally through last year. The metal slipped into a bear market on April 12 on speculation central banks in Europe may sell holdings to raise funds. The 14 per cent plunge in the two days through April 15 was the most since February 1983. Gold for immediate delivery gained as much as 1.3 per cent to $1,386.25 an ounce and was at $1,383.47 at 11:47am in London. Prices touched $1,321.95 on Tuesday, the lowest since January 2011. Bullion for June delivery was 0.4 per cent lower at $1,382.50 on the Comex in New York. Futures trading volume was 57 per cent above the average in the past 100 days for this time of day, according to data compiled by Bloomberg.  Gold held in exchange-traded products decreased for an 11th day to 2,377.8 metric tonnes on Tuesday, the least since June, data show. — Bloomberg

Gold futures in New York slumped 17 per cent this year through Tuesday, the worst start since 1981, after a 9.3 per cent drop on April 15 that capped the biggest two-day decline since January 1980. The metal tumbled into a bear market on April 12, losing more than 20 per cent since the record close in August 2011, the common definition of bear market.

Bullion lost ground as the US recovery gained momentum, the dollar rose and Federal Reserve policy makers signalled they may scale back on stimulus, curbing demand for gold as a haven. Goldman Sachs Group Inc. said April 10 that the turn in the gold cycle was quickening and that investors should sell gold.

The metal’s appeal as a hedge against inflation has been eroded partly by the slowing rise in consumer prices even after five years of government stimulus. The cost of living in the US fell 0.2 per cent in March, the first drop in four months, as cheaper gasoline and clothing kept consumer prices in check, Labour Department data showed on Tuesday. Inflation expectations as measured by the break-even rate for five-year Treasury Inflation Protected Securities reached the lowest since January 2.

At the same time, the S&P 500 has more than doubled from its 12-year low in 2009, helped by the Federal Reserve’s unprecedented bond purchases, record-low interest rates and three straight years of profit growth.

“The equity trade is looking attractive because the fundamentals in the US economy continue to improve,” John Stephenson, a senior vice president and portfolio manager who helps oversee C$2.8 billion ($2.74 billion) at First Asset Investment Management Inc. in Toronto, said in a telephone interview. “It’s been a great 12-year run, but there’s increasingly less reason to be in gold.”

Gold, which typically doesn’t pay interest or generate profits on its own, has traditionally become more popular when investors are concerned that values of other assets will be eroded by inflation.

“If you think about the intrinsic value of gold, there’s not a lot,” Guy Debelle, assistant governor at Australia’s central bank, which owns 79.9 tonnes, said at a business lunch in Canberra on April 16.

“Gold often has a high price because people believe that other people believe that it’s worth a lot. When you describe other markets like that, the word ‘bubble’ gets thrown about.”