Tags: Barron’s | Gold | Likely to Stay Tarnished in 2016

Barron's: Gold Likely to Stay Tarnished in 2016

Barron's: Gold Likely to Stay Tarnished in 2016
(Dollar Photo Club)

By    |   Saturday, 02 January 2016 05:00 PM


Weak demand and uncertainty about the Federal Reserve’s monetary tightening is expected to continue pressuring gold prices even lower this year, Barron’s warns.

“Although gold futures have lost nearly 43% of their value since hitting an all-time high in 2011, the precious metal might still be a losing bet,” wrote Ira Iosebashvili, noting that gold finished 2015 near a six-year low, as prices plunged 10.7% amid a selloff in commodities.

“For one thing, there’s little indication that the downturn in raw materials’ prices is ending, as China’s slowing economy hits demand for everything from copper to cotton,” he wrote.

“While a large chunk of gold buying comes from investors who use the metal as a store of wealth, the past few years have reminded gold bugs that it is indeed part of the commodities complex, and suffers alongside other raw materials when the sector is punished,” he explained.

He said investors are reluctant to bet on gold “before getting a sense of just how hawkish the Fed will be in raising rates” in 2016. Higher rates tend to weigh on prices for gold, which pays no dividend and struggles to compete with yield-bearing investments when borrowing costs rise. Until the Fed’s path is clear, “nobody out there is rushing to buy gold,” Frank Lesh, a broker at Futurepath Trading, told Barron’s.

To be sure, there might be a glimmer of hope for gold. A weaker-than-expected U.S. economic recovery would likely slow the pace of tightening, throwing a lifeline to the precious metal.

But for now, most don't expect a precious-metal rebound.

“The last commodities boom is over, and ... the next remains a generation away,” Deltec International Group writes in a research report. In fact, the price of the metal probably will fall as low as $800 an ounce next year, predicts Atul Lele, the fund’s chief investment officer. Gold prices closed Thursday at $1,060.20 a troy ounce.

But investing icons Stanley Druckenmiller, John Paulson and Ray Dalio continue to wage big bets on gold, despite the precious metal heading for its longest slump in more than 30 years as investors sold from bullion-backed funds, the Motley Fool reports.

Druckenmiller is one of the top 10 holders of SPDR Gold Trust (GLD). Druckenmiller, who was the chief strategist for George Soros, is putting a fairly large chunk of his $4 billion or so fortune into his gold bet through his personal investment vehicle, Duquesne Family Office. His roughly 2.9 million shares of SPDR Gold Trust are worth around $300 million.

 
For his part, Paulson and his hedge fund group Paulson & Co. continue to believe in gold. According to regulatory filings, the 9.2 million or so shares of SPDR Gold Trust his company owns are worth around $900 million at recent prices. “To be fair, he doesn't have as large a stake in gold right now as he did in 2010. What's interesting here is that in late August, Paulson called gold fairly valued. It's only kept falling since then,” Reuben Brewer explains.

Finally, Dalio, founder of Bridgewater Associates, has been quoted as saying, "If you don't own gold, you know neither history nor economics." Dalio isn't getting his exposure to gold through the SPDR Gold Trust, he's investing directly in gold miners Newmont Mining (NEM), Barrick Gold (ABX), and Goldcorp (GG).

To be sure, gold’s image as a haven asset has taken a battering as investors sold from bullion-backed funds, Bloomberg reports. “Gold is suffering from the general exodus out of commodity investments,” Ole Hansen, head of commodity strategy at Saxo Bank A/S in Copenhagen, said by e-mail. “Being one of the most-traded commodities through ETFs, the selling pressure from paper investors has been felt particularly hard and gold’s safe-haven status has suffered.”

(Newsmax wire services contributed to this report).

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Weak demand and uncertainty about the Federal Reserve’s monetary tightening is expected to continue pressuring gold prices even lower this year, Barron’s warns.
Barron’s, Gold, Likely to Stay Tarnished in 2016
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2016-00-02
Saturday, 02 January 2016 05:00 PM
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