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Interest in gold melting with its first annual price decline since 2000.
Stock markets are gaining, and people are optimistic about the economy, which means one other thing: the bad news bears are sniffing around gold. After 12 consecutive years of the price going like gangbusters, the shine has started to come off the precious metal. It has tumbled 30 per cent this year, and its prospects in the near term aren’t, well, golden.
Battered bullion is headed for its first annual price decline since 2000, signaling what some say is the end of the gold rush that saw the price surge six-fold and an unprecedented mining super-cycle.
“To me, it’s like the sound of a huge spaceship coming down,” says Matthew Hart, author of Gold: The Race for the World’s Most Seductive Metal. Though exploration and mine construction have pretty much dried up amid the metals-market downturn, Hart says the fickle yet fascinating commodity continues to capture the world’s imagination.
“We are at the end of the greatest gold rush in history. This one was totally investment-driven rather than an area play like the Hemlo discovery (in Northern Ontario in the 1980s) or the California gold rush,” he says.
Hart is referring to the $33 billion (U.S.) worth of bullion that is traded every day in London thanks to the emergence of gold exchange-traded funds (ETFs).
People once clutched gold bars for comfort during times of economic upheaval. But over the last decade, investors mostly scooped up ETFs to get exposure to gold without the hassle of physically buying the metal. (A standard 400-ounce brick at Fort Knox, for instance, is the size of a Kleenex box and weighs 27 pounds.)
Investors dumped as much gold from exchange-traded products in 2013 as had been purchased in the previous three years, according to data compiled by Bloomberg. They sold 789.3 metric tons since the start of January, pushing holdings to the lowest level since March 2010 and wiping $67.5 billion from the value of the funds.
Even billionaire John Paulson said recently he wouldn’t personally invest more in his bullion fund.
Interest in gold melted this year, with the prevailing view on Wall Street that things are looking up, say analysts. Simply put, a stable economy is gold’s worst enemy.
“Gold feeds on panic,” says Hart. And there was plenty of that following the subprime mortgage lending crisis that blew up in September, 2008, taking the global economy, stock markets and the U.S. dollar down with it.
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