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Gold faces pain as equities outlook brightens

Analysts say further gains in global stock markets this year will be a signpost of more losses for gold.

Analysts say further gains in global stock markets this year will be a signpost of more losses for gold. Picture: AFP

LONDON - Further gains in global stock markets this year will be a signpost of more losses for gold, according to analysts, citing a re-established negative correlation between the two assets.

After nearly a decade of bullion broadly tracking stocks, as represented by the S&P 500 index, this year the opposite relationship materialised as share prices rallied.

While the S&P index has gained 10 percent so far on the year to date, gold is sitting firmly in bear market territory. After a brutal sell-off in April, it is nursing an annual loss of around 24 percent.

The S&P and spot gold showed a positive correlation between 0.6 and 0.9 from 2004 to 2012, after being negatively related between 1990 and 2003, according to data from Standard Bank Research.

"What happens to equities will play a bigger role than it did in the past six or seven years," Standard Bank analyst Walter de Wet said. "The inverse correlation (between gold and equities) will strengthen as people look at what interest rates will do, what the dollar will do."

Analysts polled by Reuters say U.S. stocks will continue to rise this year, surpassing record levels hit by the Dow Jones Industrial Average and the S&P 500 earlier this year.

* Gold correlation with stocks turns negative after a decade

* Equities seen withstanding Fed's QE exit more than gold

* Investment stands at 35 pct of gold use vs 9 pct in 2002