Investors are awaiting greater stability in gold prices before returning to an asset that has slumped this year, even though concerns over the economic recovery are burnishing the metal's longer-term appeal.
Gold tumbled $200 an ounce in less than two weeks in June to its lowest in nearly three years, at $1,180 an ounce. An even larger fall was seen in April in just two days, gold's sharpest such retracement in 30 years.
Both moves were followed by rebounds, which recouped more than half the metal's losses in the first instance and over $100 an ounce in the second. However, gold's failure to build on those recoveries left buyers wary.
Its slide was blamed largely on institutional investors abandoning the market after hints from the U.S. Federal Reserve that it could rein in its $85 billion monthly bond-buying measures, part of its quantitative easing program.
Those suggestions have been tempered in recent weeks. Monetary policy remains ultra-loose worldwide, the dollar is back on the defensive, and concerns remain over a revival in the euro zone debt crisis and the pace of Chinese growth.
On the face of it that makes gold appealing, especially at its cheapest in nearly three years. But funds are cautious.
"To some extent, gold is temporarily damaged," Remi Ajewole, co-fund manager of the Schroders Diversified Growth fund, said. "A lot of investors have lost their confidence and the level of volatility we've seen, particularly around April, has shaken out a lot of the nervous investors.
"Approaching $1,200, the asset class is starting to look attractive again, but we don't necessarily feel confident about adding to it right now. We're approaching interesting levels, but we're still waiting for some key trigger points."
Fund managers flag up heavy selling from exchange-traded funds, which have reported outflows of 579 tons of bullion this year, as a major factor stopping them coming back to gold. Gold ETF holdings are at their lowest in more than two years.
"I'd like to see a stabilization of the pace at which ETFs are liquidating," Pau Morilla-Giner, chief investment officer at London & Capital, said. "Week after week, we've seen outflows."
SAFE STORE OF VALUE
Gold came into its own during the financial crisis, rallying sharply after an initial sell-off as investors bought the metal as a safe store of value and a hedge against systemic risk.
Heavy falls in the dollar, waning interest in stocks and moves by central banks to pump liquidity into the financial markets catapulted gold to record highs. Some of those supportive factors are still there.
"If you need to insure yourself against quantitative easing in the developed world, or inflation issues, or growth issues in the United States, I would say gold is actually a very cheap put option on those problems," Morilla-Giner said.
"We've reluctantly been reducing gold over the last few quarters, and now we're waiting for some of this volatility to reduce before committing again," he said.
London & Capital has cut its exposure to gold to less than 20 percent from some 60 percent in late 2012. JPMorgan Natural Resources has reduced exposure to precious metals to 17.4 percent by the end of June from 28.1 percent at the end of last year.
"Inflation expectations remain muted, in the U.S., there are small signs of recovery, the U.S. dollar has strengthened, and more recently you've had talk about the possibility of tapering QE," Nicole Vettise, client portfolio manager at the JPMorgan Natural Resources fund, said. "This environment provides headwinds for the gold price to be driven higher."
Ajewole's fund has cut gold holdings from around 4 percent at the start of the year to a "negligible" 0-0.5 percent, while Baring Asset Management has cut gold exposure to close to 10 percent from nearly 20 percent since the end of last year.
"Volatility is making buying into gold at these levels really quite challenging," Barings fund manager Clive Burstow said. "A big macro shock could change the game for gold... but we think there's enough (ingeniousness) out there to get us through these problems. The trend in our view is upwards, but it is a long, slow grind up."
With the outlook for U.S. monetary policy, Chinese growth and European stability all unclear, investors are divided on whether 2013's trend for rising stocks, lower gold prices and dollar strength will continue. Until they get more clarity, other assets like equities or cyclical commodities like oil are likely to tempt investors away from gold.
After several years as investors' darling, gold prices will have to do without their support, at least for the time being.
"The dollar will peak sooner or later, inflation will rise and (U.S. shares) will run out of steam at a time when gold will be heavily oversold," Charles Morris, head of absolute return at HSBC Global Asset Management, said.
"All in all, I see a new bull market beginning within the next year or so. But (I) don't plan to buy quite yet."
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