Gold prices have slipped 27 percent so far this year and assets
in the bullion fund SPDR Gold Shares (NYSEArca:GLD) have fallen by
almost half-suggesting the 12-year gold rally may be over and the
stage may be set for smoother growth ahead if the mania to own gold
that accompanied the worst downturn since the Great Depression has
run its course.
There are plenty of strands to this story, the most crucial of
which seems to be that the inflationary pressure so many thought
would accompany the Federal Reserve's unprecedented easy-money
policies of zero interest rates and "quantitative easing" has yet
to materialize, essentially undercutting one of the main reasons
investors own gold.
GLD, the world's biggest physical gold ETF, has suffered
outflows of $18 billion this year, the latest of which was $667
million worth of redemptions on Tuesday, June 25, according to data
compiled by IndexUniverse. The huge fund now has just under $40
billion after starting the year with more than $72 billion, an
asset drop of 45 percent that's accelerating.
Gold prices are now at $1,222 a troy ounce, the lowest they've
been since August 2010, and well off the cycle high of $1,921 in
September 2011 that followed rancorous debates in Washington, D.C.,
over the "debt ceiling"; Standard & Poor's surprise downgrade
of U.S. sovereign debt; and the unsettling spectacle of a
debt-gorged eurozone in policy chaos.
Gold prices drifted sideways for some time after that upsetting
period, but actually began to decouple from the Fed's
"inflationary" policies in the fall of 2012, when the U.S. central
bank launched so-called QE3-the $85 billion a month bond-buying
program designed to keep borrowing rates low in an economy still
scarred by the meltdown of 2008-2009.
"In the end, gold is a hedge against inflation, and QE hasn't
resulted in any inflation," said Sumit Roy, a commodities analyst
and managing editor of HardAssetsInvestor.com (HAI). Roy stressed
that the lack of increased inflationary pressure in the wake of
QE3, more than after the first two legs of bond buying, really
caught the attention of the gold market.
It's been a more or less steady move downward in price and
assets since then, though GLD-said to be held more by traders than
-has borne the brunt of the shift in investor sentiment. This year,
GLD has lost 28 percent of its holdings in troy ounces, while all
other gold ETFs have lost 12 percent. GLD makes up half of all the
gold in ETFs.
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