(By R. Chandrashekhar) Gold's performance in the just concluded second quarter is considered worst in recent years. This throws a question whether the yellow metal had lost its shine or can it still hold its glitter. Obviously, this will also put a spanner on gold related stocks.
After eleven years of Bull Run, Gold had shed around 4.3 percent in the second quarter of 2012. The drop would have been much higher if not for the European Union leaders' resolution on its debt crisis on the last trading day of the quarter. However, gold stocks suffered the most led by Gold Corp. (NYSE: GG
) that plummeted 16.6 percent.
Newmont Mining (NYSE: NEM
) is the least to suffer with a loss of 5.4 percent, yet more than Gold's fall during the quarter. Another company, Barrick Gold (NYSE: ABX
) took a hit of 13.6 percent, whereas Gold Fields' (NYSE: GFI
) stock dropped 7.8 percent.
Interestingly, stock markets broader index S&P 500 shed 3.3 percent only, while the Dow Jones Industrial Averages or DJIA suffered a loss of 2.5 percent. The tech-based Nasdaq suffered the most with 5.1 percent drop.
The comparative performance between gold and stock markets clearly suggests that investors are slowly shying away from the yellow metal. This is probably due to the lower demand in view of the rock high price being ruled for a long time. Analysts believe that the precious metal has given a long bull run and its time for a pause.
The yellow metal had hit a high of $1920 per ounce in September 2011 and currently trades around 16.7 percent lower. At the close of the first quarter of 2012, gold's price was trading around 13 percent lower than its all time peak. Market is also cautious about the long Bull Run due to previous experience. In 1980, Gold peaked to more than $650 per ounce in the third quarter, and in the fourth quarter, its average price stood around $590 per ounce. After this, gold had gone into hibernation, and it took over 25 years to reach the psychological mark again.
The demand for the precious metal had, no doubt, slipped to 1,097.6 tons in the first quarter of 2012 from a peak of 1,225.9 tons in the third quarter of 2011. This suggests demand plummeting by 10.5 percent. Sequentially too, demand witnessed 4 percent fall during the first quarter. The second quarter demand is expected to be lower than the first quarter, which means further fall from the peak.
One of the main reasons for gold performed lower than stocks is that it had lost its momentum completely and hedge funds have also left the scene. Analysts believe that they may come back to invest in gold. For this to happen, the bullion market needs a catalyst to spike the price, which is lacking currently. Also, falling demand makes investors somewhat cold towards the yellow metal.
However, some analysts still believe that gold can come back as an investors' favorite as other class of assets aren't offering any significant returns. None-the-less, macroeconomic conditions hold key to the yellow metal's price as it is considered a safe heaven. Yet, the near term looks bearish.