Gold flirts with bear market as bullion backed funds have longest losing streak since 2004

The spot price for the yellow metal ended the regular session down $21.00, or 1.35%, at $1,535.80 an ounce on the Comex division of the New York Mercantile Exchange.

Gold dipped to $1,528 in morning trade, briefly signalling a bear market with the metal 20% below its peak of $1,913 set on August 23 last year.

Reuters quotes BNP Paribas analyst Anne-Laure Tremblay as saying “negative market sentiment seems well entrenched;” a sentiment echoed by another market watcher:

“It’s difficult to see a turnaround just yet. There will be one, but I don’t think this is the time, just when we are in the eye of the storm,” Societe Generale analyst Robin Bhar said.

“Clearly, with people staring into the abyss, it could (fall) $50 or even $100 lower as it washes out. That is the unpredictability of it all and as equities fall, as the Greeks take money out of the banks and the banking sector collapses, I suppose you’d have to be wary of further price falls just to cover for losses in other markets,” he said.

Gold’s pullback this year seems to have caught even the savviest investors by surprise.

Bloomberg reports the fund controlled by billionaire investor George Soros more than tripled its investment in the SPDR Gold Trust during the first quarter of the year while hedge fund guru John Paulson did not sell any of his substantial holdings. Others got out while they could:

Global holdings in ETPs backed by bullion are headed for a third straight monthly decline, the longest losing streak since 2004. Assets in the SPDR Gold Trust, the largest fund backed by bullion, peaked at 1,309.92 metric tons on Aug. 8 and were at 1,277.11 tons as of yesterday.

Volatile silver gave up more than a dollar, ending at $27.03 – a price not seen since January last year and down 40% from historic highs just shy of $50 in April 2011.

The relative performance of silver is also weaker with the gold/silver ratio now above 56, levels last seen in 2010.