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Why are investors least interested in gold?

Why are investors least interested in gold?
It's never been such a long bad phase for gold in recent memory. Reports, data and gold prices are all revealing a rough patch for gold, ever since it peaked in Sept 2011.

According to a Reuters report Holdings of SPDR Gold Trust, the world's largest gold ETF, reported 11 straight sessions of losses.

Another report from Investment News adds that "A record $4.1 billion was pulled from gold ETFs in February, the largest single month of net outflows from a prominent Group. It's almost twice the previous high - $2.6 billion in January 2011," Jason Kephart reported for InvestmentNews.

And yet another report by Barclays Capital says that net redemption in gold ETFs at this pace pose "the largest downside risk to prices."

Demand for Gold has already dropped by 4 per cent in 2012, according to the World Gold Council. Apart from declining physical gold demand in India and China, Gold ETFs have seen withdrawals and fall in assets under management. In India gold demand has been surpressed by increasing import duties, so as to ensure the country's current account deficit does not spiral out of control.

International Spot Gold itself has declined from the $1800 levels in Sept to the current levels of $1579. The sharp decline has happened as funds have now sold into the precious metal to lay fresh bets on equities. Indian gold tracks international prices and any decline in international gold prices gets reflected here, provided the Indian rupee behaves.

Why the disinterest?

Economic greenshoots have emerged in the US and key data being released each week has suggested a rebound in economic growth. Ditto for China where growth momentum seems to be accelerating. Improvement in economic conditions will mean that investors will continue dumping a safe haven asset like gold, for equities.


The Dow Jones Industrial Average hit a record high on Thursday, while Japan and European indices are nearing their 5-year highs.

With easing measures in place across Europe, Japan and the US, excess liquidity is being pumped into risky assets like equities, while investors are selling into gold. After all, equities can give you faster returns then gold, because they are volatile.

In India gold has not fallen in line with international prices, as the depreciating rupee has ensured that gold price in India remains at elevated levels.

Read more about: gold gold etfs
Story first published: Friday, March 8, 2013, 9:36 [IST]
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