After climbing 500% in a decade, perhaps it is time for gold investors to accept that the yellow metal is a spent force.
The secular bull cycle that thrust gold into the limelight as the world's most rewarding investment is finally waning and the metal is finally taking a well-deserved breather, some analysts believe.
Gold is down 6.5% year to date and there is a good chance this could be the year it records its first annual decline in more than a decade.
"Gold will have its day in the sun at other points down the road, but the clouds on the horizon could portend still lower gold prices over the next couple of years," said Avery Shenfeld and Emanuella Enenajor, analysts at Canadian bank CIBC.
As always, gold inspires huge loyalty — and equally intense disdain — from investors. Legendary investors like Warren Buffett consider gold to be a bubble and useless, while die-hard gold bugs believe gold will go higher still as the world's central banks maintain their loose monetary policies.
But there is no doubt that gold is losing followers. Barclays Banks notes that more than five million tons of gold has been sold this year in exchange-traded funds.
"Lack of investor conviction has seen the gold price trade within a narrow range," notes Barclays Bank. "Prices have struggled to source a catalyst to break higher, but ahead of the Lunar New Year some interest from China supported the downside. Without that demand in February, consumption in other regions will have a larger gap to fill. In our view, a slowdown in ETP flows, the longer-term investor support for gold, poses a key structural risk for prices."
Gold is USD1,578 per ounce but Barclays still expects gold to hover around the USD1,800 per ounce by the end of the year.
Capital Economics is even more bullish, expecting the yellow metal to reach an all-time high of USD2,200 per ounce before the end of the year, even though the metal has had five consecutive lackluster months.
"The relative stability of the US dollar against a basket of other major currencies has been an important headwind," said Ross Strachan, commodities economist at Capital Economics. "However, the prospect of an extended period of ultra-low global interest rates and a further expansion of the U.S. monetary base should continue to underpin gold.
Central banks in emerging market central banks have been accumulating gold to their reserves. Over the past decade, Russia has accumulated a total of 958 tons of gold, making its gold reserves the eighth largest of all central banks, says the World Gold Council.
Frank Holmes, U.S. Global Investors CEO and chief investment officer, points to Moscow's fascination with gold.
"Russian president Vladimir Putin continues to turn his black gold into bullion," said Mr. Holmes in a report. "After turning Russia into the world's largest oil producer, Mr. Putin has turned the country into the biggest gold buyer. His claims of the U.S. endangering the world economy by abusing its dollar monopoly have led Russia to seek safety in gold. The country added 570 metric tons of gold in the last decade, beating runner-up China by almost 150 metric tons. Gold has risen almost 400% since Putin's purchases."
But central banks' gold accumulation may not necessarily point to an upsurge.
Between 1999-2002 the then-UK Chancellor of the Exchequer Gordon Brown famously sold the country's gold reserves, when gold prices were at record low levels – only to see it climb higher ever since.
"These reserve fund managers have not, however, been decisive in driving gold prices for the past decade," note CIBC analysts. "As central banks ran to the hills, as steady net sellers from 2002 to 2009, gold climbed 250%. In contrast, gold seems to be hitting a plateau just as some central bankers are adding weight."
Indeed, it is becoming increasingly difficult to convince investors of gold's continuing allure. With the global economy showing signs of improvement, and investors returning to real estate and equities across the wider world, gold's safe haven status looks less promising, especially as there seems little headroom for a fresh rally in the yellow metal.
"We're not expecting a huge torrent of selling over our two-year forecast horizon," said CIBC analysts. "The gold bugs will need more convincing that the Fed and other central banks will keep inflation under wraps as the economy recovers, and we will be a long way from full capacity in the U.S. or elsewhere as 2014 comes to a close. But a continued slide to $1,500 an ounce would still mean that gold will under-perform equities as an asset class over that two-year period."
Gold has also come under pressure due to speculation that the U.S. Federal Reserve will slow or end asset purchases before the end of 2013.
Once again, gold bugs are vociferous in their defense of the metal. But market signals suggest their argument – as well as their patience — is wearing thin.