I wouldn't buy gold with my worst enemy's cash: Strategist

Despite the slight recovery in prices, Scott Nations, the president and chief investment officer of NationsShares, told CNBC on Monday that the value of gold has been completely distorted by the Fed's quantitative easing program and its true value is closer to USD 1,000 per ounce.  As the Federal Reserve's tapering announcement pushes gold close to its 2013 low, one strategist told CNBC he
wouldn't even buy the precious metal with his worst enemy's money. The Federal Reserve's decision last week to trim its USD 85-billion-per-month asset-purchase program by USD 10 billion knocked gold prices down to USD 1,185.10 per ounce on Friday, close to its 2013 low of USD 1.180.71 seen in late June. On Monday, gold had recovered a little to trade at USD 1,203.35 per ounce in early trade in Asia. (Read More: Gold settles up after taper) But despite the slight recovery in prices, Scott Nations, the president and chief investment officer of NationsShares, told CNBC on Monday that the value of gold has been completely distorted by the Fed's quantitative easing program and its true value is closer to USD 1,000 per ounce. "I wouldn't buy gold with my worst enemy's money. And why is that? It's because gold got further from home (fair value) because of all of the iterations of quantitative easing – than anything else out there," said Nations. "Gold should not be at USD 1,200, it probably shouldn't have been at USD 1,500. Where should it go? I think it should go below USD 1,000 dollars in 2014," he added, suggesting a near 17 percent drop from Monday's levels.

Gold prices have hugely benefited from the Fed's quantitative easing (QE) program, rising 70 percent from December 2008 to June 2011 as the U.S. Federal Reserve pumped more than $2 trillion into the financial system, as investors snapped up the precious metal in the hope the asset would protect against inflation. But gold's fortunes have seen a sharp turnaround this year, as expectations of the end of QE gained traction and prices saw a sharp drop of 24 percent from mid-April to late June. According to fund flow data provider EPFR Global, investors have pulled $38.8 billion from gold funds so far this year, the highest annual amount since 2,000. The yellow metal has now lost over 28 percent year to date, and is now poised for its worst annual performance in over three decades.

Turning tide Many more bullish industry commentators are starting to turn more bearish following the Fed's tapering move. Jonathan Barratt, founder of Barratt's Bulletin, who has championed more bullish views in recent months, told CNBC he was starting to get nervous. "The bullish boots are strapped on as long as $1,170 stays in play – if that goes then they are going to back in the cupboard for some time," he said. Barratt added that it was becoming harder to disagree with the fundamental headwinds facing gold, including the barrage of exchange traded funds (ETFs) selling, the lack of inflation in the global economy and the fact that other assets offer a yield to investors so are therefore more attractive.

"It [gold] doesn't have any friends. At the moment a barrage of fundamentals suggest that USD 1,170 [per ounce] will be tested and if that happens to break down that suggests a deeper, darker consolidation period," he added. NationsShares' Nations urged investors to stay away from gold producers, which he said were set for pain once the price of gold plummets below production costs, at around USD 1,200 per ounce. "I would not want to be a gold miner right now, particularly given the input costs, including fuel, are not going to go down nearly as quickly as their output prices. I think being a gold miner would be a really tough business to be in in 2014," added Nations. "I would buy gold puts because it's going to start getting pretty ugly for gold and the true believers aren't going to be throwing in the towel until they get a little bit more pain," he added.