Investors’ 12-year love affair with gold ended in 2013 as they abandoned the precious metal for stock markets in the world’s developed economies, lifting global share prices by the most in four years.
While the Standard & Poor’s 500 Index (SPX) surged to a record in the broadest-ever advance and bonds worldwide lost money for the first time since 1999, it was the 28 percent plunge in gold, the worst in more than three decades, that stunned investors the most, according to Quincy Krosby, a market strategist at Prudential Financial Inc.
“Investors were heartbroken by gold,” Krosby, whose firm oversees more than $1 trillion, said. “The selloff was one of the deepest purges in an asset class that I’ve seen. They went into gold because they saw the momentum continuing, until it stopped. And it stopped violently.”
Demand for bullion as a preserver of wealth collapsed as the global economy showed signs of improving and central bank stimulus, led by the Federal Reserve, failed to ignite the runaway inflation that billionaire hedge fund manager John Paulson and other gold buyers anticipated.
Instead, investors poured into equities, spurring a 20 percent advance in the MSCI All-Country World Index. Gold had gained more than 600 percent from the start of 2001 to its peak of $1,923.70 an ounce in September 2011.
The rally accelerated after the Fed dropped interest rates close to zero in 2008 and began its unprecedented bond buying , which flooded the U.S. economy with more than $3 trillion and raised the specter a weakening dollar would accelerate inflation. The decline in gold in 2013, which pushed its price to $1,202.30, was the first annual drop since 2000 and the deepest since 1981.
Gold futures in New York closed at a three-year low on Dec. 19, a day after the Fed said it would curtail stimulus as the U.S. economy strengthened and joblessness decreased. Investors pulled $38.6 billion from gold funds in 2013, the most in data going back through 2000, according to EPFR Global, a research company.
