Is the 12-year gold bull run finally over?

The recent decline in the gold price and better-than-expected recovery in the US has led some investors to predict a turn in the gold cycle, which would break a 12-year run of gains for the precious metal.

Investors have been cutting their holdings in gold equities and exchange-traded funds as the spot price has fallen 5% so far this year to trade below $1,600, well beneath its all-time high of $1,921 hit in September 2011.

Managers have been taking action in the short term to ride out the falls.

Neil Gregson, manager of the £1.5bn J.P. Morgan Natural Resources fund, has taken the gold equity holdings in his fund from 31% to 21%, the lowest level since 2008.

“We added to gold equities in the early part of last year and we were not rewarded because of the overall poor performance of that asset class. That flipped in Q3 and we saw gold prices rise to $1,900 which boosted gold equities, but then they sold off heavily when the gold price retreated at the end of last year, and that has continued into 2013,” he said.

“We are less positive now as we believe there will be more synchronous growth. We are seeing high levels of pick-up in Chinese growth and there is evidence of growth in the US.”

Gregson is also concerned that, should global growth continue to surprise on the upside, investors – many of whom are sitting on a profit despite the recent pullback – may yet dump more of their gold holdings.

Last month Goldman Sachs cut its 2013 gold price forecast from $1,810 to $1,600 an ounce as the metal’s recent price drop and an increase in US real interest rates led to speculation the turn in the gold cycle has already started. If Goldmans’ prediction proves correct, this will mark the first year gold has recorded a lower average price year-on-year since 2001.

Investors have been cutting their gold exposure for some months. Since January, investors in gold ETFs have sold 140 tonnes of the precious metal, and February saw the largest monthly outflow from gold ETFs on record. Earlier sellers included billionaire investor George Soros, who cut his holdings in gold ETPs by more than half late last year.

Edward Smith, global strategist at Collins Stewart Wealth Management, suggested the gold price could fall to a low of $1,000 by 2015.

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