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Is it time to dump your gold shares?

The gold price has fallen to a five-year low since 2010 as it looks probable that the U.S. Federal Reserve will raise interest rates in December. That is helping boost the U.S. dollar and curb gold’s appeal as a safe haven asset.

Gold’s spot price was trading between U.S. $1,067.09 and U.S. $1,071.66 on Wednesday, 2 December. Rewind back to 31 December 2009, and gold was trading at U.S. $1,096.35. Not much of a difference in the price over the last five years as the precious metal retreats to another low.

Even the Exchange Traded Funds or (ETFs) in gold have been painting a disappointing picture. The world’s largest gold ETF, State Street’s SPDR Gold Trust (ETF) with a market capitalisation of U.S. $22.29 billion is trading 23.16% below the price it was trading at five years ago. iShares Gold Trust (ETF), another gold ETF being managed by BlackRock, Inc., with a market capitalisation of U.S. $5.45 billion is also trading 22.42% below the five-year price.

Tonnes Q2’14 Q2’15 Year-on-Year change Year-to-date change
World’s Gold Jewellery Demand Total 594.5 513.5 ↓-14% ↓-8%
India 152.6 118.0 ↓-23% ↓-3%
China 184.6 174.4 ↓-5% ↓-6%

Source: World Gold Council, August 2015.

As the above table illustrates, the world’s gold jewellery demand has fallen by 14% from last year. The two key markets for gold, India and China are experiencing reduced jewellery demand. In India, unseasonal rains damaged crops which had an adverse impact on rural population incomes and a dearth of marriages in the wedding season led to decline in jewellery demand. In China, an economic slowdown has had a direct impact on the demand for jewellery.

A multitude of factors are contributing to the decline in price for gold. Here in Australia, key gold mining companies like Newcrest Mining Limited (ASX: NCM), St Barbara Ltd (ASX: SBM), and Northern Star Resources Ltd (ASX: NST) have all seen their share prices drop in November.

Whether the gold price has hit the bottom, is a difficult prediction to make, but what appears likely is that gold as a safe asset is falling out of favour. The U.S economy’s recovery is making other asset classes more appealing than gold. A Chinese economic slowdown is also impacting gold prices similar to the prices of other commodities.

Foolish takeaway

Gold is a safe haven asset, which investors seek in times of high volatility. Demand and supply factors also play a role in the price of gold. In the current scenario, the U.S economy and demand from India and China are factors pushing down the price of gold. I think the gold price is likely to go lower, and a Foolish investor seeking gold investments may consider an ETF if the gold price falls below U.S. $900.

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Motley Fool contributor Qaiser Malik has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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