Gold 'has no appeal' as prices sink to 5-year low

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London - Gold has no appeal as a commodity or alternative to currencies, Macquarie Group said on Friday, renewing the sell-off that’s driven prices to a five-year low.

Futures for August delivery slid 0.8% to settle at $1 085.50 an ounce at 13:43 on the Comex in New York, after touching $1 072.30, the lowest for a most-active contract since February 2010. The metal dropped 4.1% this week, the most since October. Trading volume was 95% above the 100-day average for the time of day.

Investors are bailing on gold on expectations the Federal Reserve will soon raise interest rates as the economy strengthens. The price drop has been extreme and it may not be over yet, Macquarie analysts including London-based Matthew Turner said in a report on Friday. The bank lowered its 2016 average gold forecast by 15% to $1 163.

“The mood is very poor,” Grant Sporre, an analyst at Deutsche Bank, said by phone from London. “The feeling is that the metals are pricing in rate cuts in the US, but I expect that we’ll still see a further leg down when the event actually occurs.”

Gold has fallen 8.3% this year. Higher borrowing costs curb the appeal of gold, which doesn’t pay interest or give returns like other assets including equities. Economists project a 50% chance for a rate increase in September. The Bloomberg Dollar Spot Index has risen almost 20% in the past year.

The plunge means profits at one-third of the producers of the precious metal are under threat, according to Bloomberg Intelligence. Shares of Barrick Gold, the world’s largest producer, headed for the biggest weekly decline since 1989.

Investors are selling the metal from gold-backed funds at the fastest pace in four months. Holdings in exchange-traded products declined 17.6 metric tonnes this week to the lowest since 2009, data compiled by Bloomberg show.

“Gold has always had a dual nature as a currency and a commodity,” Macquarie wrote in the report. “At present, it is not desired in either form.”

- With assistance from Kevin Crowley in Johannesburg and Luzi Ann Javier in New York.


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