Gold has been having its worst week in months as signs continue to point to recoveries in the U.S. and the Chinese economies, exasperated by news that prominent investors have reduced their positions in the yellow metal. The weakness in gold also indicates that inflation is not the threat once thought to be in a world of central bankers printing money.
Gold futures traded below the critical support level of US$1,600 an ounce, the weakest since Aug. 16, closing the week at US$1,605, down over 4 percent in five days, its biggest weekly drop since June 2012. The previous support level for traders was US$1,625, and when it broke that level, stop-loss orders were triggered. Traders are now looking at a new range of US$1,625 on the top and new support level of US$1,550 at the bottom. Stop-loss orders are used by traders to limit their downside risk.
It was also revealed that notable institutional investors George Soros, Julian Robertson’s Tiger Management and PIMCO all reduced their exposure to gold in the fourth quarter 2012. Soros sold over half his holdings in SPDR Gold to 600,000 shares at the end of the fourth quarter, down from 1.32 million shares in the third. (SPDR Gold Trust is the world’s largest gold-backed, exchange traded fund, holding approximately 1,323 tonnes of gold bullion.)
Tiger Management sold its entire stake in Market Vectors Gold Miners ETF, but still holds a position in Junior Gold Miners ETF.
Besides the U.S. housing and jobs market recovery reducing gold’s attraction as an economic hedge, some feel that money is moving out of the precious metals and into equities, fueling the stock market’s recent five year highs. Investors are also anticipating statements out of the G20 meeting to put a damper on concerns of global currency wars as countries look to devalue their currencies to boost exports.
Shares of gold mining companies were not immune to the sell-off on Friday, with Barrick Gold Corp down 2.8 percent, Gold Fields down 7.7 percent, GoldCorp down 2.5 percent and Newmont Mining Corp down 3.5 percent.