Gold is set for its worst month since June, leaving it down 6% for the year, and on its way to the first annual loss since 2000, Reuters reports. Gold has been below $1300 for the last three weeks and fell a bit further today. With markets set for an early close, it doesn’t have much time to bounce back this month.
Investors pulling out from gold
Investors have been taking their money out of gold and other defensive assets to take advantage of the recovering US economy and growing stock markets, though it has had temporary rallies in response to specific events such as the debt ceiling debate and government shutdown. US nonfarm payroll data is coming in next month, and disappointing numbers could give gold another boost, but the long-term trend is tied to investors’ outlook on the rest of the economy. As long as the mood stays bullish, analysts expect gold to keep dropping.
The ExodusPoint Partners International Fund returned 0.36% for May, bringing its year-to-date return to 3.31% in a year that's been particularly challenging for most hedge funds, pushing many into the red. Macroeconomic factors continued to weigh on the market, resulting in significant intra-month volatility for May, although risk assets generally ended the month flat. Macro Read More
You would normally expect gold mining operations to give prices some support, but so far that hasn’t happened, even when the mines are operating at a loss relative to all expenses. As Citi analyst Jon Begtheil recently explained, gold mines are still operating at a profit relative to cash costs, which seem to be a better indicator of price pressure for the sector. If this theory holds, gold shouldn’t fall below about $1000, even as investors turn their attention elsewhere, because at that price mines will have to halt operations, even on a cash cost basis.
Gold price fixing
The gold price fixing process has come under official scrutiny in the wake of the Libor and Euribor scandals, although there are no specific accusations yet. Every day Deutsche Bank AG (NYSE:DB) (ETR:DBK), Barclays Plc (NYSE:BCS) (LON:BARC), HSBC Holdings Plc (NYSE:HSBC) (LON:HSBA) (HKG:0005), Societe Generale SA (EPA:GLE) (OTCMKTS:SCGLY) and Bank of Nova Scotia (NYSE:BNS) (TSE:BNS) set a price for gold based on their clients orders, setting a benchmark for the rest of the financial system. Since this central position has been abused in analogous situations in the last few years, the U.K. Financial Conduct Authority has decided to look into the process just in case there are similar abuses taking place.