Gold funds hit 2008 level ahead of US Fed action

“Physical buyers may view $1,200 as an attractive entry point,” said James Steel from HSBC.

Yet there is a risk that the downward slide could prove self-fulfilling as more producers sell their output on the futures markets, replicating the hedging pattern that blighted the market in the 1990s.

JP Morgan says interest in gold has evaporated to the point where speculative long and short positions monitored by the US Commodity Futures Trading Commission have dropped to the lowest since early 2006.

The wild card is China, still buying fistfuls of physical gold. UBS estimates that the country imported 1,500 tonnes last year, smashing former records.

The great unknown is whether this will last as China reforms its financial system after the Third Plenum, which may open the door to other assets. Analysts are watching for any sign that Chinese appetite for gold is starting to fade as well.

Mr Jessop said the worst was probably over as India prepares to lift import restrictions and global equity prices move too far out of alignment with precious metals. “We see plenty of scope for gold to bounce back in 2014.

The bursting of the bitcoin bubble may even make gold look more appealing to Chinese investors. We reiterate our view that the price of gold will revisit $1,400, at least, in 2014, and probably go higher,” he said.

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