Gold ETFs Down 7% in Three Months as Banks Turn Bearish

March 11th at 3:30pm by Tom Lydon

More investment banks are turning bearish on the outlook for gold in 2013 following a nearly 10% decline the past three months.

“For the first time since 2008, in our view, the investment environment for gold is deteriorating as economic recovery, rising interest rates, and still benign Western inflation will leave some investors rethinking their cumulative $240 billion investment in gold over the past four years,” Nomura analysts wrote in a sector note last week.

The Japanese bank cut their forecast to $1,602 per ounce, from a previous 1,981 in 2013. The 2014 forecast is set at $1,750 from a previous $1,800. Gold prices have lost 12% since October 2012, and are down 18% from the high seen in 2011, reported Jack Farchy for The Financial Times.

Goldman Sachs also cut their forecasts for the gold outlook in 2014, while predicting a stop in gold prices this year, reported Katy Barnato for CNBC. BNP Paribas, Credit Suisse, Citi and Societe Generale also cut their gold forecasts for this year and the next.

In the past two months, however, ETF holdings have fallen in tandem with prices. While the drop is small relative to the total holdings in gold ETFs, it is still the largest sell-off on record. “It’s a little worrying,” says a fund manager with large investments in gold. “This has never really happened before.”

In contrast, The World Gold Council reported that gold purchases in 2012 were the highest over the past 50 years. A bet against gold prices is not advised, as central bank demand is still strong to diversify reserves. [Reasons Why Gold ETFs Could Bounce Back]

On the flip side, analysts are becoming increasingly bullish toward palladium. The Russian stockpile is depleting quickly and a recovery in the auto industry is creating further demand for the metal. [Gold ETFs Rebound as Prices Test $1600 Per Ounce]

“We expect the palladium/gold price ratio to trend higher at pace over coming  quarters and years, and see the scope of palladium to have outperformed gold by at least 30% by late next year,” Jesper Dannesboe and Robin Bhar of Societe Generale said.

Physically-backed gold ETFs:

  • SPDR Gold Trust (NYSEArca: GLD)
  • iShares COMEX Gold Trust (NYSEArca: IAU)
  • ETFS Physical Swiss Gold Shares ETF (NYSEArca: SGOL)

Tisha Guerrero contributed to this article.

Full disclosure: Tom Lydon’s clients own GLD.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.