Gold will have to settle for the bronze.
Through Friday, gold futures have given up all the gains they had accumulated this year, now 5.9% off where they began.
Gold's sister metal, silver, has fallen harder, and plunged 9.9% Friday. Though both crude-oil futures and the broad Dow Jones-AIG Commodity Index fell Friday, they are up on the year, 19% and 1.2%, respectively.
"There's been a lot of surprise by the depth of the reversal" in gold, said Thomas Winmill, who manages Midas Fund, a precious-metals fund.
Judging by some indicators, gold should be holding up. Inflation world-wide remains a threat, and the continuing credit crunch and spreading economic worries should make gold an attractive safe-haven bet. But the recent rise in the dollar caught investors off guard. Meanwhile, commodities as a group have been selling off, and jewelry producers have recoiled -- second-quarter jewelry demand for gold fell 24% this year from the same period a year ago.
Gold futures Friday fell 2.7%, or $22.20, to settle at $786 a troy ounce on the Comex division of the New York Mercantile Exchange. It finished its fifth losing week in a row.
Even gold watchers have been caught off guard. Although total demand fell 19% in the second quarter from a year ago in terms of tonnage, according to the World Gold Council, demand rose 9% in terms of value, as gold prices were up then versus the year-ago period. Yet "the market has behaved as if it's a totally different world," said George Milling-Stanley of the World Gold Council.
Gold miners have spent billions of dollars to remove price hedges out of fear gold prices would go higher. This year's second quarter marked the 25th consecutive quarterly reduction of miners' hedging programs, according to VM Group, a London commodities-research firm.
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Now, these companies are being punished for being bullish, as their profit margins will be squeezed by falling gold prices. AngloGold Ashanti Ltd., the world's third-largest gold producer in terms of production, spent $977 million reducing its hedge book by 3.15 million ounces during the last quarter, according to the South African company's financial statements.
Year to date, AngloGold's shares are down 35%, and other companies unwinding hedges such as Barrick Gold Corp., the No. 1 producer, and No. 2 Newmont Mining Corp. are down 24% and 15%, respectively.
Meanwhile, some analysts are "revising short and medium term forecasts as fast as they can keep track of the proverbial falling knife," wrote Jon Nadler, a senior analyst at Kitco Bullion Dealers Montreal.
On Aug. 7, Goldman Sachs Group Inc. said it was maintaining its long-term price forecast for gold of $810 an ounce. It cited stagnant mine-production growth and strong demand from consumers and investors. But Thursday, Goldman slashed its forecasts, lowering its short-term target on gold by 16% to $745 an ounce, and its 12-month forecast by 8.6% to $740, citing strength in the dollar.
Earlier this month, Standard Chartered Bank of the U.K. pushed back its forecast for $1,000 gold from the first half of 2009 to the second half of that year.
Bulls remain. Citigroup Inc. analyst John Hill wrote Thursday that gold will head into a seasonally strong period. "Longer term, we would not be surprised to see gold double from current levels."
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Prospectus
