(Bloomberg News) Gold is stuck in the longest slump in a decade as investors shun bullion for the dollar and bonds, just seven months after Bank of America Corp. said Europe's debt crisis would send prices to a record $2,000 an ounce.
The bank was joined by Goldman Sachs Group Inc., Morgan Stanley and Barclays Plc in urging investors to buy in December and January. Now, after gold fell 10 percent in a four-month slide through May, they say prices will rebound this year or next as the Federal Reserve shores up the world's biggest economy by easing monetary policy and devaluing the dollar.
Billionaire George Soros bought more in the first quarter and hedge-fund manager John Paulson held on to the biggest stake in the SPDR Gold Trust, the largest exchange-traded product backed by bullion, Securities and Exchange Commission filings show. Some investors are refusing to capitulate even after failed elections in Greece drove the euro to a two-year low against the dollar and gold slumped as much as 21 percent in December from the record $1,923.70 set in September.
"The $2,000 target has moved further away, but it still holds," said John Stephenson, who helps manage $2.7 billion at First Asset Investment Management Inc. in Toronto and predicted in November that prices would reach $2,500 in the next several months. "We will see some easing, and that will push gold higher, but the reality is that we are on hold until the outcome of the Greece elections."
Gold fell 19 percent by May 16 from its closing high of $1,891.90 in August, within 1 percentage point of the common definition of a bear market. Prices then touched a five-month low of $1,523.90 on Dec. 29. After rallying 3.7 percent on June 1, the metal is now up 4.4 percent since the start of January to $1,636.30 today, extending an 11-year bull market.
The Standard & Poor's GSCI Spot Index of 24 commodities retreated 8.2 percent this year, and the MSCI All-Country World Index of equities declined 1.5 percent. The U.S. Dollar Index, a measure against six currencies, advanced 3 percent. Treasuries returned 2.2 percent, a Bank of America index shows.
Hedge funds and other speculators reduced their net-long positions, or bets on higher prices, by 70 percent since August, Commodity Futures Trading Commission data show. They held 77,325 U.S. futures and options in the week ended May 29, almost the fewest since December 2008.
Gold held through ETPs dropped for a third month in May, according to data compiled by Bloomberg. Combined with the decline in prices, the holdings are now valued at $125 billion, down from $141.7 billion in August.
In October, Bank of America forecast $2,000 by early 2012. Goldman predicted in December that gold would reach $1,840 by early June. Barclays and Morgan Stanley said in January that it would average $1,850 and $1,810 this quarter. The metal actually averaged $1,619 since the end of March. Goldman now expects prices to reach $1,940 in 12 months. Barclays predicts an average of $1,790 in the fourth quarter, and Morgan Stanley forecasts $2,000 in the final three months.