Gold‘s loss of luster in 2013 will be confirmed on Tuesday as the precious metal registers its worst annual fall in over 30 years, after investors spent 2013 moving their money into equities.
Gold staged a modest rebound to $1,198.80 per ounce by 9.00 a.m. London time on Tuesday. But any late gains weren’t enough to hide a disastrous year for the precious metal, often bought as a safe haven asset during market turbulence, which is heading for its biggest annual decline since 1981.
“It’s going down further,” Nick Hungerford, chief executive and founder of investment management company Nutmeg, told CNBC Tuesday.
“We think next year gold could hit $1,000 an ounce and that will just be a continuation of a trend which is forced and forced and forced by more people wanting to get back into equities and out of commodities.”
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The price of gold has fallen by around 28 percent since beginning the year at $1,697.70 per ounce. Prices are sharply lower than all-time highs above $1,900 in 2011, when a worsening debt crisis in Europe sparked buying of safe haven assets. Gold enjoyed gains of nearly 30 percent in 2007, 2009 and 2010. In the 10 years up until last December, gold has surged around 400 percent, with the help of low interest rates, extra liquidity from the U.S. Federal Reserve, and concerns over the global economy.
The metal has traditionally had an inverse relationship to interest rates, with demand for the precious metal increasing when rates are low, as they currently are, and is often seen as a hedge against inflation.
December 2012 was seen as a key turning point for gold prices with the commodity losing its close correlation to Fed policy announcements. On December 12 last year, the Fed announced that it would buy $45 billion in additional Treasurys every month, on top of the $40 billion of mortgage-backed securities it already purchases, taking the total size of its quantitative easing program to $85 billion a month.
While previous quantitative easing announcements had had a positive effect on the price of gold, the precious metal actually posted a surprise fall of 1 percent on the day of the announcement.
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The sell-off continued in April 2013. Gold saw a sharp drop on concerns that struggling euro zone country Cyprus would have to sell excess reserves of the precious metal to raise about $522 million to help finance that country’s $13 billion international bailout.
Bullion took another hit, falling to a six-month low, on December 20 after the Fed’s decision to scale back its bond-buying stimulus prompted another sell-off. A drop in exchange-traded fund holdings showed investors had increasingly lost faith in bullion as a hedge against inflation and as an alternative investment. Many analysts see the buying of physical gold in China and India, which is still relatively strong compared to historic rates, as the only upside for the price.
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Roger Nightingale, an economist at RDN Associates – who was bearish on gold throughout 2013 – argues that it could fall even further.
“I think it could go to $500 quite easily before it turns up again,” he said. “It has no yield, all I’m doing is buying it on the basis that somebody else would want to buy it at a higher price in the future. And once you’ve got a significantly long downtrend the majority of people stop thinking that somebody’s going to bail them out at the higher price.”
—By CNBC.com’s Matt Clinch. Follow him on Twitter @mattclinch81