By Laura Clarke
Gold prices have fallen this week as nervousness over
geopolitical risk has diminished.
Spot gold traded in London slid sharply Tuesday, shedding some
2% of its value when traders returned from a long weekend to news
of Ukraine's relatively peaceful presidential election.
Bullion metals, traditionally considered a sound store of value
and a safe-haven investment in times of heightened political and
systemic risks, had benefited from the worst East-West standoff
since the end of the Cold War. Gold had snapped a steady losing
streak to gain 16% in the three months to March as the crisis in
Ukraine intensified.
But that cushion deflated this week and with the "Putin premium"
removed, in the short term, at least, investors were forced to
re-evaluate gold's remaining fundamentals. Few liked what they
found.
Gold "has few supporting impulses right now and quite an arsenal
of factors that collectively spell further weakness up ahead," said
UBS precious metals strategist Edel Tully. "There's no rush from
physical buyers here, rather they're happy to wait for lower levels
in what is, seasonally, a quiet time for physical demand," Ms.
Tully said. " Investor sentiment is weak, albeit contained, [and]
technicals suggest further downside. Against all this, gold has a
battle."
The U.S. dollar also weighed on the price of gold. Between
Tuesday and Thursday the greenback strengthened against a number of
currencies, including the euro, as speculation mounted of an
interest-rate cut by the European Central Bank. A strong dollar
tends to dent the appeal of dollar-denominated gold to buyers
holding other currencies, so its performance this week was far from
conducive to gains for the metal.
"The dollar index has strengthened, boosted by the ECB's very
strong call for action, and the markets have listened," said Gautam
Batra, an investment strategist at Signia Wealth, which has around
2.2 billion ($3.7 billion) in assets under management. Its typical
balanced portfolio can have around 5% invested in precious metals
at any time.
"Gold is less needed if equity markets are performing better,
because there's less of a safe-have demand," he said.
Daniel Belchers, commodities portfolio manager at Threadneedle
Asset Management, which has $1.3 billion in commodities
investments, said the U.S.'s fairly robust economy "tells me you
don't need to be holding gold."
Mr. Belchers has been bearish on gold. "We see better relative
performance in other commodities," he said, adding that both energy
and industrial metals show more promise.
Nevertheless, apathy remains as much gold's friend as it is its
foe.
"The risk is for more short-term speculators to aggressively
short gold but, with gold no longer on the radar for many
investors, that risk is somewhat diminished," said UBS's Ms. Tully.
"Gold is intent on trading lower, but in a very orderly
fashion."
Mr. Batra said potential supports for gold are a discourse
around monetary-policy easing in Europe and global inflationary
risks.
"Longer term real interest rates have declined markedly, and so
the opportunity cost of holding gold is lower," he said. "The fact
that global growth is better, has actually resulted in oil moving
up, therefore the inflation-protection side of gold has been
boosted."
"On balance, I would argue the move in gold has probably been a
little over done," said Mr. Batra. "It's certainly not very
oversold but it is at levels that will attract interest. In the
next month or two, one would expect current prices to be relatively
stable and for gold to hold these levels."
Tatyana Shumsky in New York contributed to this article.
Write to Laura Clarke at laura.clarke@wsj.com
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