17th August 2015
The future is still not looking much brighter for gold as research shows the precious metal has fallen firmly out of favour among investors.
According to the Lloyds Bank Private Banking Investor Sentiment Index, August witnessed the largest fall in investor feelings towards bullion since May 2013.
Net investor sentiment towards the asset class declined 24 percentage points (-24pp) from last month and 13pp from this time last year to 11%. The significant fall in gold has seen it decrease from the second strongest asset class last month to the fifth weakest in August.
Notably on 20 July 20, the price of gold tumbled to a five-year low, reaching $1,088 per ounce, a level it had not reached since March 2010. The strength of the US dollar and the prospect of higher US interest rate were blamed for the sell-off.
The Lloyds index also highlighted that Japanese shares saw the second biggest monthly decline in sentiment, down 5pp to -6%, resulting in its third consecutive monthly fall, with the drop in Chinese markets over the past few months, likely to have taken its toll on sentiment towards the asset class.
However, overall Japanese equities are on a substantial recovery path, which is largely due to the Bank of Japan’s monetary policy support programme. Commodities saw the third largest decrease in sentiment, off 4pp, to 5%.
For the first time since the survey began in March 2013, all four sterling-denominated asset classes have displayed the strongest investor sentiment. Net sentiment remains strongest for UK property at 54%, UK shares, at 37%, UK government bonds, with 20% and UK corporate bonds, at 18%.
Sentiment towards eurozone shares saw its first increase in three months, rising 4pp to -44%. In addition, all of the four sterling-denominated asset classes recorded a positive performance, with UK shares recording the biggest increase of all asset classes, rising 11pp. UK property increased 7pp, reversing the 8pp decrease seen last month for the asset class. UK corporate bonds increased 5pp and UK government bonds rose 1pp.
Ashish Misra, head of portfolio specialists at Lloyds Bank Private Banking, said: “While we would expect to see Gold do well in times of volatility, investors have generally held their nerve and reached out to other asset classes for returns. In addition, with the price of Gold falling to a five year low last month, the potential long-term outlook for Gold is modest.
“With improvement in net sentiment scores for Eurozone shares, we should expect increased interest in the asset class over the coming months as the situation in Greece improves.”