Metals Slide, Gold Eyes Smallest Gain Since 2008

Gold futures settled lower at the COMEX on Friday, with the February contract dropping $7.80, or 0.5%, to $1,655.90 per ounce.  In doing so, the yellow metal turned lower for the week, by 0.3%.  Furthermore, gold futures now remain up by just 5.7% on a year-to-date basis.

While the price of gold remains on pace for its 12th consecutive annual gain, this year’s advance is likely to be its smallest since a 5.5% rise in 2008 (the yellow metal posted gains of 23.9%, 29.8%, and 10.1% in 2009, 2010, and 2011, respectively). In addition, a decline on Monday could bring gold to its worst year since 2004, when it moved higher by 5.4%.

COMEX silver futures retreated as well, with the March contract trading down this afternoon by $0.22, or 0.7%, at $30.03 per ounce.

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Commenting on gold’s tepid performance this year, Javier Blas of the Financial Times wrote on Friday that “Gold has suffered in spite of renewed fears about the US economy and the dollar, which in the past have acted as catalysts for strong price gains…The political gridlock in Washington and the prospect of further quantitative easing by the US Federal Reserve has fuelled demand for precious metals among small investors recently. But the threat of going over the US fiscal cliff of automatic tax increases and spending cuts has so far failed to boost demand from gold among the largest institutional investors.”

Blas went on to say that “Gold demand in India, the world’s second-biggest consumer after China, remains lacklustre in spite of some restocking ahead of the festival season in early 2013. The weakness of the Indian rupee against the US dollar, the currency in which gold is priced, is deterring buyers. Chinese gold consumption growth has also slowed in the second half of the year from the torrid pace of the previous two years.”

He also included a comment from Barclays Capital analyst Gayle Berry, who stated that “The entire precious metals complex has endured further downside pressure but gold physical demand has responded to the lower price environment.”

Despite these factors, Blas noted that “Most analysts are anticipating another year of strong gold prices in 2013, on emerging signs of stronger physical buying around the world…Analysts and traders also believe that demand to buy gold as a hedge against currency devaluation remains strong among investors and asset managers as well as reserve managers at many central banks, providing support into 2013.”