Investors in gold funds, whose value slumped a record $44.7 billion in the second quarter, may do better in the second half of the year if history is any guide.
Gains averaged 1.3 percent in the second half from 1981 to 2000, when gold endured a two-decade bear market, data compiled by Bloomberg show. First-half losses averaged 3.9 percent in the period. Investors sold 404.4 metric tons from exchange-traded products backed by the metal in the second quarter as prices tumbled into a bear market in April.
Gold is poised for the first annual drop in 13 years after some investors lost faith in the metal as a store of value. The rout already strengthened demand for jewelry and coins around the world and the second half of the year usually sees gains in physical demand for wedding seasons and religious festivals in Asia, including India and China, the biggest buyers.
“The physical trend has always been very seasonal,” said Bernard Sin, the head of currency and metal trading at MKS (Switzerland) SA, a bullion refiner in Geneva. “Physical players are a different breed. They are always buying on the dip. Physical support will continue to be present and it will definitely trigger interest.”
The metal returned an average of 11 percent in the second half of the year during the bull market that began in 2001, more than double the average first-half increase. Demand was stronger in the second half in nine of the past 12 years, according to data from Thomson Reuters GFMS. Bloomberg competes with Thomson Reuters in selling financial and legal information and trading systems.
Gold for immediate delivery dropped 27 percent to $1,220.35 an ounce this year in London. The metal fell 23 percent in the second quarter, the most since at least 1920, according to data compiled by Bloomberg. U.S. President Richard Nixon severed the dollar peg to gold in 1971 and the government lifted curbs on citizens owning gold at the end of 1974.
Investors accumulated a record 2,632.5 tons through ETPs by December amid unprecedented money printing by central banks. Federal Reserve Chairman Ben S. Bernanke said June 19 that asset purchases may slow if the economy improves. The U.S. Dollar Index reached the highest level since 2010 today.
Gold plunged 11 percent in June as India, the biggest buyer, imposed curbs on imports to trim its trade deficit. The country’s imports may drop 52 percent in the third quarter, according to the All India Gems & Jewellery Trade Federation.