$1,921.15 Peak
After peaking at $1,921.15 an ounce in September 2011, gold fell to as little as $1,180.50 in June, the lowest since 2010, before recovering yesterday to $1,321.67. ABN Amro Group NV analysts consider it a respite, predicting the price will average $1,000 next year and $840 in 2015 because a stronger U.S. economy will limit gold’s appeal.
For many, a turning point came in May and June, when the yield on the 10-year U.S. Treasury note rose almost a percentage point to 2.61 percent from 1.63 percent, destroying the premise of a faltering U.S. “The foundation for gold has eroded,” said Edward Lashinski, the Chicago-based director of global strategy for futures trading at RBC Capital Markets LLC. “Capital can be deployed much more effectively in other enterprises that actually see a return.”
The drop frustrates ordinary and sophisticated investors alike. John Paulson, the New York hedge fund manager noted for making $15 billion with a bet against the U.S. housing market in 2007, told investors in February 2012 that gold would be his next triumph. His gold fund lost 59 percent through July this year, according to a person familiar with the results. The University of Texas Investment Management Co. -- whose advisers include Dallas hedge fund manager Kyle Bass, also known for a winning housing gamble -- has seen a gold hoard once valued at $1.5 billion decline by more than $400 million.
Bank Boomerang
Gold also boomeranged on central banks trying to diversify away from the U.S. dollar. After the late Venezuelan President Hugo Chavez added to a gold stockpile that’s now almost 70 percent of foreign reserves, the slump this year pushed the country’s reserves to the lowest since 2004 and compromised the government’s ability to repay foreign bondholders. A lack of dollars for imports has created shortages of such staples as toilet paper and rice.
At the September 2011 peak, the market value of the world’s gold mining companies reached $486 billion, more than the gross domestic product of the United Arab Emirates. Since then, they’ve lost $271 billion, including a 71 percent plunge in U.S. shares of AngloGold Ashanti Ltd., a Johannesburg-based producer held by Paulson.
Amid the rush for hard assets that followed the 2008 financial crisis, some investors overlooked some of gold’s drawbacks, among them the premiums to purchase and store it and the lack of a dividend.
‘Trash Bags’
“We’re holding trash bags,” said Philip Mann, 53, who with his wife put about $160,000, half their retirement savings, into gold and silver coins starting in 2009. They’re now worth at least 40 percent less, including sales mark-ups, he said. The drop forced him to cash out a 401(k) retirement plan, losing money to penalties. It also drained resources for two sons’ college bills and the planned purchase of a new home, said Mann, a retail supply-chain manager in Portland, Tennessee.