By Nicolas Larkin,
Gold traders are the most bullish in nine months after investors’ bullion holdings expanded to a record on mounting speculation that central banks will do more to bolster economic growth.
Twenty-nine of 35 analysts surveyed by Bloomberg expect prices to rise next week and three were bearish. A further three were neutral, making the proportion of bulls the highest since Nov. 11. Investors bought 51.7 metric tons valued at $2.77 billion through gold-backed exchange-traded products this month, the most since November, overtaking France as the world’s fourth-largest hoard when compared with national reserves.
Data released yesterday showed Chinese manufacturing at its weakest since November, signaling the nation may need more action to rebound from six quarters of slowing growth. European leaders are still struggling to contain the debt crisis. Minutes of the Federal Reserve's most recent meeting showed many policy makers favor more stimulus. Gold rose 70 percent as the Fed bought $2.3 trillion of debt in two rounds of quantitative easing from December 2008 through June 2011.
“Additional stimulus is inevitable, the question is how it comes,” said Charles Morris, who oversees about $2.5 billion of assets at HSBC Global Asset Management in London. “There’s no doubt about it, this is gold’s moment. All the long-term trend signals suggest that gold is in a very strong bull market.”
Gold rose 6.5 percent to $1,665.43 an ounce in London this year, reaching a four-month high yesterday and extending 11 consecutive annual gains. The Standard & Poor’s GSCI gauge of 24 commodities advanced 4.3 percent and the MSCI All-Country World Index of equities added 8.1 percent. Treasuries returned 2 percent, a Bank of America Corp. index shows.
Gold ETP holdings overtook France’s reserves on Aug. 21 after rising 90.4 tons this year to 2,447.1 tons, data compiled by Bloomberg show. Only the U.S., Germany and Italy hold more, International Monetary Fund data show. The IMF itself holds 2,814 tons of bullion, placing it between Germany and Italy.
Billionaire John Paulson raised his stake in the SPDR Gold Trust, the biggest gold ETP, by 26 percent in the second quarter and George Soros more than doubled his holdings, U.S. Securities and Exchange Commission filings showed Aug. 14. Investors will buy 150 tons through ETPs this year and next, Barclays Plc estimates.
Fed policy makers said further action would probably be needed “fairly soon” without evidence of a “substantial and sustainable” improvement in the recovery, according to minutes of the July 31-Aug. 1 meeting released Aug. 22. They next meet Sept. 12-13. Monetary easing can devalue currencies and accelerate inflation, boosting the allure of gold, which generally earns investors returns only through price gains.
Gold closed above its 200-day moving average on Aug. 22 for the first time since March, and that may be a “shot in the arm” for prices to rally toward $1,700, CMC Markets U.K. Plc said in a report that day. The metal held above the measure from the beginning of 2009 through the end of last year, a period in which it reached a record $1,921.15 in September.
Other technical indicators signal the rally could stall. Bullion’s 14-day relative-strength index (MXWD) was at 69.2 today, near the level of 70 that indicates to some analysts who study such charts that a drop in prices may be imminent.
The increase in prices and ETP holdings has yet to be reflected in speculative wagers in U.S. futures markets. Hedge funds and other money managers cut bets on a rally by 58 percent since the end of February, U.S. Commodity Futures Trading Commission data show. The net-long position fell 4 percent in the week to Aug. 14 and is near the lowest since 2008.
Physical demand is slowing elsewhere, with sales of American Eagle gold coins by the U.S. Mint dropping 49 percent to 30,500 ounces last month, the lowest since April. The mint sold 21,500 ounces so far in August, data on its website show.
Gold imports in India, last year’s biggest buyer, are set to fall as much as 50 percent in the September to December period from a year earlier, Prithviraj Kothari, president of the Bombay Bullion Association, said Aug. 21. Local prices reached a record today, data compiled by Bloomberg show. That may crimp demand at a time when a below-average monsoon in the country threatens rural incomes.
Bullion should be supported toward the end of this year and the beginning of 2013 on rising seasonal wedding and festival demand in Asia, Ronald Stoeferle, a commodity analyst at Erste Group Bank AG in Vienna, said in a report e-mailed Aug. 22.
Republican drafters of their party’s 2012 platform called for the creation of a commission to “consider the feasibility” of returning the US Dollar to the gold standard “to set a fixed value” for the currency, according to a 60-page draft of political positions and principles that will be submitted for adoption when the Republican National Convention begins Aug. 27 in Tampa, Florida.
In other commodities, 11 of 22 traders and analysts surveyed by Bloomberg expect copper to gain next week and five predicted a drop. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, added 0.5 percent to $7,640 a ton this year.
Five of 10 people surveyed said raw sugar will decline next week and four expect an increase. The commodity slid 16 percent to 19.63 cents a pound since the start of January on ICE Futures U.S. in New York.
Thirteen of 23 people surveyed anticipate higher corn prices next week and five were bearish, while 17 of 23 said soybeans will increase and three predicted declines. Corn jumped 27 percent to $8.185 a bushel in Chicago this year and reached a record $8.49 on Aug. 10 as the worst U.S. drought in half a century damaged crops. Soybeans set an all-time high yesterday and are up 43 percent this year at $17.285 a bushel.
The S&P GSCI gauge of raw materials entered a bull market on Aug. 21, climbing more than 20 percent from this year’s lowest close on June 21. The global economy will expand 3.5 percent this year and 3.9 percent in 2013, the IMF estimates. Developing nations will grow 5.6 percent in 2012, it predicts.
“In the short-term, it would be difficult to see considerably higher commodity prices without quantitative easing from central banks,” said an analyst at Commerzbank AG in Frankfurt. “In the long term, I don’t think that commodities need quantitative easing measures, as they can rise without it. The economy should recover and demand in emerging markets is still relatively robust.”
Gold survey results: Bullish: 29 Bearish: 3 Hold: 3 Copper survey results: Bullish: 11 Bearish: 5 Hold: 6 Corn survey results: Bullish: 13 Bearish: 5 Hold: 5 Soybean survey results: Bullish: 17 Bearish: 3 Hold: 3 Raw sugar survey results: Bullish: 4 Bearish: 5 Hold: 1 White sugar survey results: Bullish: 4 Bearish: 4 Hold: 2 White sugar premium results: Widen: 2 Narrow: 4 Neutral: 4
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