Unlike other commodities, gold typically benefits from uncertainty in the world economy. Yet neither the Greek bailout negotiations nor the Chinese stock rout that erased $4 trillion in wealth spurred investors to seek shelter in gold.
‘Opportunity Cost’
“A lot of people have held gold as insurance or as a hedge against geopolitical risk, and we found that trade seems less effective over the last few years,” said Jim Tassoni, chief investment officer at Regal Investment Advisors in Kentwood, Michigan. “Gold has no dividends and no yield, and that presents a lot of opportunity cost,” because the money invested in it could be more profitably deployed elsewhere.
Some die-hard gold fans are using the recent slump as an opportunity to add to holdings. Sales of American Eagle coins at the U.S. Mint in July are heading for the biggest monthly total since April 2013, when prices first fell into a bear market. Demand has also increased at the Royal Canadian Mint.
“Without question, there is going to be an opportunity down at these levels for people to be buying,” said Jeff Sica, who oversees $1.5 billion as president and chief executive officer of Circle Squared Alternative Investments in Morristown, New Jersey. “People will be looking at gold to hedge against the havoc. If prices fall further we will add,” he said. The fund has a “small” long position in the metal, he said.
Analyst Outlook
Analysts predict more losses. Oversea-Chinese Banking Corp.’s Barnabas Gan, the most accurate forecaster of precious metals in rankings compiled by Bloomberg, predicts gold will reach $1,050 by December. ABN Amro Bank NV’s Georgette Boele and Robin Bhar of Societe Generale AG say bullion will approach $1,000 by December. Goldman Sachs Group Inc.’s Jeffrey Currie says the metal could fall below that level this year for the first time since 2009.
As prices slide, mining stocks are also suffering. Shares of Canada’s Barrick Gold, the world’s largest producer, dropped to its lowest price since 1990 in Toronto on July 22.
“I started adding to the gold short position in January and February, and I’d like to increase it,” said John Stephenson, the chief executive officer of Stephenson & Co. Capital Management in Toronto. “Gold tends to have a very weak fundamental trend because it’s mainly held for psychological reasons.” He said that if the gold price recovers a bit, he’ll increase his bets against it.