On Wednesday, gold dropped to the lowest level since March 2010 as negative sentiment overwhelms the sector and analysts predict a return to triple digits for the metal.
Futures contracts in New York with August delivery dates were priced as low as $1,087.10 an ounce down more than $15 or over 1% from yesterday’s close.
It’s the tenth straight day of losses and the 6% decline over the period is the worst losing streak for gold since September 1996 when gold was worth around $380 an ounce.
Last week large gold futures investors such as hedge funds slashed long positions – bets on a rising price – to the lowest since 2006 when the Commodity Futures Trading Commission first started to collect the data.
At the same time speculators’ short positions – bets that gold could be bought cheaper in the future – are at record highs.
The recent weakness in gold follows comments from the US Federal Reserve that the central bank is on course to raise interest rates before the end of the year for the first time since 2006.
Rising real interest rates raises the opportunity costs of holding gold because the metal provides no yield and therefore the price should decline.
Higher rates also boost the value of the dollar which usually move in the opposite direction of the gold price.
Against major currencies the greenback is 20.7% stronger than a year ago while gold has declined 17% compared to this time last year.
Chief commodity strategist at investment bank Goldman Sachs, Jeffrey Currie, who has been bearish on gold since 2012, tells Bloomberg that gold is heading below $1,000 an ounce.
Currie argued that gold is essentially hedge against a debasement in the US dollar and rising inflation. Both these factors have faded and can no longer support the gold price because “the demand to use gold as a diversifying asset against the US dollar becomes less and less important”:
“In longer term, we definitely like playing this market on the short side,” Currie said. “We think we are in a structural bear market, not only in gold, but across the commodity complex, as the individual commodity stories are reinforcing to one another, creating a negative feedback loop.”
Currie is not the only market observer predicting further losses in gold.
In the annual gold forecast survey by the London Bullion Market Association of the 35 analysts polled, five predicted a dip below $1,000 in 2015.
Adam Myers of Credit Agricole was the most bearish with $950 as an average and a low point of $880.
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