Investors 'flee' gold as speculators predict more downturn

DUBAI: Investor sentiment surrounding gold is deteriorating, as speculation is rife that the precious metal is heading for an oil-style collapse, according to analysts.

The latest official data indicated that investors are already fleeing the precious metal, with bar and coin demand falling and exchange-traded funds (ETF) outflows slowing down. At the same time, hedge funds are betting more on the possibility that the prices will fall rather than rise. According to Ole Hansen, head of commodity strategy at online multiasset trading and investment specialist Saxo Bank, the sentiment in gold and other metal markets has been "turning increasingly negative" during the past month.

He pointed to the lack of inflationary signs and safehaven demand, combined with rising bond yields, collapsing emerging market currencies, a rising dollar, and rising expectations of an early US rate hike, as the reasons that have helped trigger an exodus out of gold.

"Nowhere is this clearer than in the futures market, where hedge funds during the past few months have been getting increasingly bearish. As a result, we have seen the combined net position of gold futures and options turn negative for the first time since data began being collected in 2006," Hansen said. In July alone, holdings in ETF backed by physical gold dropped by 63.6 tonnes. "A monthly reduction of this magnitude was last recorded during [the second quarter of 2013] when the latest major price collapse occurred," Hansen added.