Gold Plunges Amid Stock Surge

Those who trade gold provided the precious metal with its sharpest annual loss since 1981 this year.

On Dec. 31, the last trading day of 2013, February futures for the precious metal settled at $1,202.30 an ounce on the Comex division of the New York Mercantile Exchange, according to Bloomberg. As a result, prices for the commodity have plunged 28 percent for the year. 

Gold plunges amid stock surge
At the same time, U.S stocks surged, The Wall Street Journal reported. Many global investors sought out equities, which are perceived as having more risk than gold, during a year when sentiment was supported by various reports indicating strength in the economy.

One person who noted how the precious metal dropped while stocks surged was George Gero, who works for RBC Capital Markets Global Futures as a senior vice president, according to the media outlet. He observed that U.S. equities rose by an amount that was close to the decline that gold suffered during 2013.

“The biggest theme for gold this year has been the move out of gold and into equities,” the market expert stated, according to the news source. “Last year, clients were asking fund managers, ‘Do I own gold?’ This year, the clients are asking if they own well-performing equities.”

As these stocks spiked in value, many global investors saw their perception of the precious metal as a store of value begin to deteriorate, Bloomberg reported. Another factor that contributed to the sentiment of market participants changing was the Federal Reserve’s decision to announce a definitive timeline for paring quantitative easing.

Fed announces tapering timeline
Earlier in December, Fed policymakers indicated at the conclusion of their most recent meeting that starting in January, the financial institution would purchase $75 billion worth of these financial instruments every month. This figure represented a gradual decrease from the $85 billion that the central bank had been purchasing on a monthly basis.

“Expectations of monetary policy and the influence of that on gold was the dominant factor for 2013,” Howard Wen, who works for HSBC Securities (USA) Inc. as a a precious-metals analyst, told The Wall Street Journal. “The withdrawal of stimulus removes the need for gold as an inflation hedge.”

Another person who noted the changing sentiment around possible increases in the price level was Ric Spooner, chief analyst at CMC Markets in Sydney, according to Bloomberg. While those who trade gold persistently worried that monetary stimulus could be a major factor that could help push the price level higher, many stopped becoming concerned about this potential situation, Spooner told the media outlet.

“Investors gave up, at least temporarily, on the notion that central bank stimulation was going to cause an inflationary problem in western economies in the foreseeable future,” he told the news source. Spooner noted that in addition, while those who invest in exchange-traded products “had previously been a source of demand for gold, they became net sellers.”

Data provided by Bloomberg revealed that in 2013, the gold holdings of ETPs lost $73.7 billion in value. In addition, the assets of these investment vehicles plunged 33 percent  for the year to 1,767.1 tons on Dec. 27.

Traders short gold
In this year, when the price of the precious metal has been plunging and the holdings of ETPs have been declining sharply, traders have been making bearish wagers on the value of the commodity with rising frequency, Sterling Smith, a futures specialist with Citi Institutional Clients Group, told The Wall Street Journal.

“Gold shorts made a surprising amount of money, and on the last day of the year gold falls off a cliff for them,” he told the news source.

Bearish predictions for 2014
In addition to dropping sharply in 2013, some market experts have predicted that next year, the precious metal will experience further deterioration. Earlier this year, Jeffrey Currie, head of commodities research for Goldman Sachs Group Inc., said that for 2014, gold is a “slam dunk” sell, according to Bloomberg. He said that the metal will become less appealing as a safe haven asset as the U.S. economy continues to grow in strength.

Another person who made a bearish forecast for the future of the precious metal was Bart Melek, head of commodity strategy at TD Securities in Toronto, the media outlet reported.

“The haven premium has dwindled considerably with the economy showing signs of improvement,” he told the news source. “Prices could drop to $1,125 before March as there are no reasons to buy gold.”

Not everyone has such dire feelings toward the metal, as data provided by the U.S. Mint reveals that in 2013, purchases made from this government agency have surged 14 percent, according The Wall Street Journal. Gold suffered its sharpest two-day decline since 1974 in April, and in that month, dealers purchased more than 200,000 ounces worth of coins made from the precious metal.