Tags: Darby | gold | financial | sector

Jefferies' Darby: Gold Hurt By Its Inverse Tie to Financial Sector

By    |   Monday, 23 December 2013 06:58 AM

Gold is slumping hard, dropping to a three-year low Thursday, and Sean Darby, head of equity strategies at Jefferies Securities, says part of the precious metal's problem is how investors are using it to hedge.

Spot gold stood at $1,195 Monday morning.

"In this cycle, gold has really acted as a hedge against another financial calamity and not necessarily as a hedge against any future inflation," he tells CNBC and Yahoo's Talking Numbers.

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That has created an inverse relationship between gold and financial stocks, Darby explains. The metal has fallen 28 percent so far this year, compared with a 36 percent gain for the KBW Bank Index.

"That's really been perhaps the more difficult scenario that [gold] investors have faced over the last 12 months," Darby notes.

And the inflation outlook wouldn't do much for gold in any case, he says. "There's not very much indication that we're going to get any inflation coming through either in the U.S. or anywhere else."

Ironically, Darby thinks the gold price drop will initially cause miners to increase output, as they desperately seek cash flow. But they will likely reverse that step in 12 to 18 months, as "their cash costs start to turn negative," he argues.

Goldman Sachs predicts that gold will slide to $1,050 by the end of 2014.

"Gold is now likely to grind lower throughout 2014," Jeffrey Currie, Goldman's head of commodities research, tells Bloomberg.

"Much of the expected price decline has been priced in as opposed to a more gentle process as the Fed backs away from QE [quantitative easing]. When the gold market sees these events, it usually tries to price it in immediately."

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Gold is slumping hard, dropping to a three-year low Thursday, and Sean Darby, head of equity strategies at Jeffries Securities, says part of the precious metal's problem is how investors are using it to hedge.
Darby,gold,financial,sector
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2013-58-23
Monday, 23 December 2013 06:58 AM
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