LONDON — Gold has further to drop in the rout that has erased US$66 billion (S$84 billion) in six months from the value of investor holdings and took prices below the level some mines need to break even, analysts said.
The precious metal fell to a 34-month low of US$1,180.50 an ounce last Friday in the biggest quarterly slump in at least nine decades as investors lost faith in bullion as a store of value.
Denmark’s Danske Bank, the most accurate gold forecaster tracked by Bloomberg over the past two years, predicts it will fall to US$1,000 within three months. Credit Suisse predicts it will fall to US$1,150 in about 12 months, while United States banking giant Goldman Sachs forecasts it will reach US$1,050 by the end of next year.
With the total cost of producing an ounce of gold now averaging about US$1,200 and billions written off the value of mining assets, some analysts anticipate contracting supply in the next several years that may help halt the retreat.
“In the long term, it will provide big support but in the short term, it won’t really make any difference at all,” said Mr Charles Morris, who oversees about US$2.2 billion in funds at HSBC Global Asset Management in London, referring to production costs. “I’m still bullish long term, but I just think we’ve got a big nasty bear market in the meantime.”
Gold has fallen 24 per cent this year to US$1,260.75 in London, including the 23 per cent drop in the second quarter that was the biggest in data compiled by Bloomberg going back to 1920. The London fixing, a twice-daily price setting by five banks that is used by some mining companies to sell their output, began in 1919.
The precious metal is heading for its first annual decline since 2000 after entering a bear market in April, ending a winning streak that saw prices rise as much as sevenfold. It is the third-worst performer, after silver and corn, in the Standard & Poor’s GSCI gauge of 24 commodities, which fell 4.6 per cent this year. In contrast, the MSCI All-Country World Index of equities rose 5.6 per cent.
Investors sold 586.5 tonnes as of June 28 from exchange-traded products in the past six months, more metal than South African mines extract in three years. They held 2,045.4 tonnes valued at US$81.8 billion, down from a peak of US$147.7 billion in October, data compiled by Bloomberg show.