Gold has pushed back after taking another battering in a miserable quarter. The precious metal rose to trim a sixth weekly loss that’s been driven by a more aggressive Federal Reserve, investor enthusiasm about President-elect Donald Trump’s policies and sales from exchange-traded funds.
“Gold has gotten smoked,” Troy Gayeski, a senior portfolio manager at SkyBridge Capital, said in an e-mail, referring to the run of recent declines. Gayeski — who warned in July bullion’s rally was at risk — said gold’s drop this quarter came on the “improvement in the U.S. economy and firming inflation that was fairly apparent prior to the election, which in turn raised the probability of future Fed hikes and a potentially stronger dollar.”
Gold’s gains this year have been chopped back, with the commodity nearing bear-market territory, after Fed tightened monetary policy on Wednesday for the first time in a year and signalled the possibility of three more hikes in 2017. Emboldened by speculation about Trump’s agenda, investors have seen returns in other asset classes with U.S. equities at records and Treasury yields rising, and are rushing to sell holdings in exchange-traded funds.
“The Trump victory has delivered the sum of all fears to gold investors due to the combination of anticipated pro-growth tax reform, a rollback of the hyper-regulation of the Obama administration, and the potential for fiscal stimulus,” said Gayeski. There’s also the “faster pace of Fed tightening, sharp increases in long-dated interest rates, and a stronger dollar. All of these factors have diminished the rationale for owning gold.”
As of Thursday’s close, gold had retreated 17 per cent from July’s high, nearing the 20 per cent loss that’s a common definition of a bear market. Prices –which remain 6.9 per cent higher this year after three straight annual declines — dipped to $1,122.89 (£903.49) on Thursday, the lowest intraday price since February.
The rout in prices this quarter has hurt miners’ shares, with Toronto-based Barrick Gold Corp. sinking 4.4 per cent on Thursday to the lowest close since April. In Australia, Newcrest Mining Ltd., the country’s largest producer, tumbled as much as 7 per cent on Friday.