The Daily Item, Sunbury, PA

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December 31, 2013

Gold caps biggest annual rout since '81 as investors lose faith

NEW YORK — Gold futures, which reached a six- month low on Tuesday, posted the biggest annual slump in three decades as an improving economy cut demand for wealth protection. Silver touched the lowest since July.

Bullion futures for February delivery fell 0.1 percent to settle at $1,202.30 an ounce at 1:39 p.m. on the Comex in New York, after touching $1,181.40, the lowest since June 28. Prices fell 28 percent this year. Investors lost faith in the metal as a store of value as equities rallied and an economic recovery prompted the Federal Reserve to pare its $85 billion in monthly bond purchases. Silver dropped 36 percent in 2013 to $19.37 an ounce, the biggest annual drop since 1981.

Assets in exchange-traded products backed by gold fell 33 percent to the lowest since 2009 amid sales by billionaires George Soros and John Paulson. Disposals of 867.8 metric tons in 2013 were more than the combined inflows in the prior three years, data compiled by Bloomberg show. The Standard & Poor's 500 Index of shares climbed 29 percent and is set for its best year since 1997, while the International Monetary Fund signaled this month the U.S. economy will expand more than forecast.

"The fear of tapering and the spectacular performance of the equity market have worked against gold this year," Bart Melek, the head of commodity strategy at TD Securities in Toronto, said in a telephone interview. "The haven premium has dwindled considerably with the economy showing signs of improvement. Prices could drop to $1,125 before March as there are no reasons to buy gold."

Silver is the second-worst performer in the S&P GSCI Spot Index of 24 commodities, which declined 2.2 percent. The MSCI All-Country World index of equities climbed 20 percent, while the dollar rose 3.4 percent against a 10-currency basket. The Bloomberg Treasury Bond Index fell 3.2 percent.

Paulson, the largest holder in the SPDR Gold Trust, the biggest bullion ETP, said Nov. 20 he personally wouldn't invest more money in his gold fund because it's unclear when inflation would accelerate. Soros and Third Point's Daniel Loeb sold their entire stakes in the fund in the second quarter.

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