By Nicholas Larkin
Gold traders are getting more bullish after billionaire hedge-fund manager John Paulson told investors it’s time to buy the metal as protection against inflation caused by government spending.
Twelve of 22 surveyed by Bloomberg expect prices to gain next week and five were neutral. Paulson & Co. is already the biggest investor in the SPDR Gold Trust, the largest exchange- traded product backed by bullion, with a stake valued at $2.9 billion, a Securities and Exchange Commission filing Feb. 14 showed. Investors have 2,389.7 metric tons in ETPs, within 0.2 percent of the record reached in December and more than all but four central banks, according to data compiled by Bloomberg.
Speculators in U.S. gold futures are now their most bullish since September after the Bank of England and Bank of Japan said they will buy more assets and the Federal Reserve said it was considering purchasing more bonds. Central banks are also expanding their bullion reserves, adding 439.7 tons last year, the most in almost five decades. They may buy a similar amount in 2012, the London-based World Gold Council said yesterday.
“The appalling state of fiscal finances of most industrial nations does lead to concerns about the possibility of inflation,” said Mark O’Byrne, executive director of Dublin- based GoldCore Ltd., a brokerage that sells everything from quarter-ounce British Sovereigns to 400-ounce bars. “Gold is a crucial diversification given the various risks out there.”
Gold rose 9.9 percent to $1,722.20 an ounce this year on the Comex in New York. The Standard & Poor’s GSCI gauge of 24 commodities gained 6.6 percent and MSCI All-Country World Index (MXWD) of equities climbed 9.7 percent. Treasuries lost 0.5 percent, a Bank of America Corp. index (MXWD) shows.
Hedge Funds and other money managers boosted wagers on higher prices by 57 percent since mid-January. They raised their net-long position by 8.6 percent to 173,172 futures and options in the week ended Feb. 7, the highest level since mid-September, Commodity Futures Trading Commission data show.
Central banks are keeping interest rates at or near record lows and expanding stimulus measures to spur growth that the International Monetary Fund predicted on Jan. 24 will be 3.3 percent this year, down from a previous forecast of 4 percent. Greece is seeking more aid on top of the 110 billion euros ($145 billion) awarded in 2010 and Moody’s Investors Service cut the ratings of six European nations on Feb. 13.
“By the time inflation becomes evident, gold will probably have moved, which implies that now is the time to build a position in gold,” New-York based Paulson said in a letter to investors obtained by Bloomberg. Armel Leslie, a spokesman for Paulson, declined to comment.
The 56-year-old manager’s SPDR Gold Trust holdings fell 15 percent in the fourth quarter as his $23 billion hedge fund company had its worst-ever year. His Advantage Plus Fund lost 51 percent in 2011, and the firm said in a third-quarter letter that financial services companies were the “primary drag.” Paulson became a billionaire in 2007 by betting against the U.S. subprime mortgage market. Gold rose 10 percent last year in New York trading, an 11th consecutive annual gain.
Europe's deepening debt crisis may spur some investors to retreat to cash. Bullion dropped 3.4 percent in the three months through December, the first quarterly decline since 2008, as the value of global equities slumped more than $10 trillion from the May peak, data compiled by Bloomberg show.
“Despite the strong start to global markets this year, the underlying sentiment is still one of fear,” said Chris Weafer, the chief strategist at Troika Dialog, an investment bank in Moscow. “Until the euro zone debt crisis is put to bed, all assets, even gold, are in the risk category.”
Investors should avoid gold because its uses are limited and it lacks the potential of farmland or companies to produce new wealth, Warren Buffet, the billionaire chairman of Berkshire Hathaway Inc., wrote in an adaptation of his annual letter to shareholders that appeared on Fortune magazine’s website on Feb. 9.
Vinik Asset Management LP, Tudor Investment Corp. and SAC Capital Advisors LP sold shares in the SPDR Gold Trust in the fourth quarter, filings showed this week. George Soros, the billionaire founder of Soros Fund Management LLC, raised his stake to 85,450 shares from 48,350.
Record investment drove gold demand to 4,067.1 tons last year, the most since 1997, the World Gold Council estimates.
Nine of 24 traders and analysts surveyed by Bloomberg expect copper to climb next week and seven were neutral. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, rose 7.4 percent to $8,161.50 a ton this year after declining 21 percent last year.
Ten of 14 people surveyed expect raw-sugar prices to drop next week. The commodity is up 1.8 percent this year at 23.72 cents a pound on ICE Futures U.S. in New York.
Eleven of 21 people surveyed anticipate lower corn prices next week, while 12 of 22 said soybeans will advance. Corn fell 0.3 percent to $6.4475 a bushel this year as soybeans rose 5.7 percent to $12.77 a bushel.
“By initiating further rounds of quantitative easing, central banks should be one of the supporting factors for commodity prices,” said Daniel Bressman, an analyst at Commerzbank AG in Frankfurt. “The high uncertainty and growing risk aversion among market players surrounding the Greek debt saga should depress any meaningful price increases.”