Gold traders are bullish for a fourth consecutive week after hedge funds added to bets that prices will rally, exchange-traded products (ETP) backed by the metal expanded and Europe’s debt crisis roiled markets.
Twenty-four analysts surveyed by Bloomberg said they expect gold to gain next week and six were bearish. A further three were neutral. Speculators boosted net-long positions by 27 per cent in the week ended June 5, the latest Commodity Futures Trading Commission data show. ETP holdings rose 18 tonnes valued at $938 million since the start of June, halting a three-month retreat, according to data compiled by Bloomberg.
Greek voters return to the polls June 17 after last month’s elections failed to produce a government, increasing concern the 17-nation euro would fracture. Almost $5.7 trillion was wiped off the value of global equities since the end of March on signs of slowing growth, spurring speculation that policymakers will do more to shore up economies. Gold rose about 70 per cent, as the Federal Reserve bought $2.3 trillion of debt in two rounds of quantitative easing, or QE, ending in June 2011.
“Whatever the outcome in Europe, it will likely be supportive for gold,” said Neil Gregson, who manages about $6.9 billion of natural-resources equities at JPMorgan Asset Management in London. “We’ve still got the possibility of QE3 in the US, which would be good for gold.”
Consecutive years
Bullion futures climbed 3.5 per cent to $1,620.60 an ounce on the Comex in New York this year, beating the 11 per cent drop in the Standard & Poor’s GSCI gauge of 24 commodities and 0.4 per cent decline in the MSCI All-Country World Index of equities. Treasuries returned 1.9 per cent, a Bank of America Corp. index shows. Gold has advanced for 11 consecutive years, increasing about sixfold since the end of 2000.
The 10 most widely held options are for prices higher than now, with the biggest conferring the right to buy gold at $2,200 by next month and the second-largest at the same cost by November, according to Comex data. Hedge funds and other speculators added 21,101 futures and options to their net-long position in the week through June 5, making them the most bullish since the start of May, according to CFTC data.
Investors own 2,388.8 tonnes in bullion-backed ETPS, within 0.9 per cent of the record reached March 13, data compiled by Bloomberg show. The three-week gain in holdings is the longest expansion in about three months.
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Combined reserves
Central banks are also buying more metal after adding 456.4 tonnes last year, the most in almost five decades, according to the London-based World Gold Council, which predicts another 400 tonnes will be added in 2012. They increased their combined reserves for 14 consecutive months through March, the longest streak since 1964, International Monetary Fund data show. Kazakhstan’s central bank said June 13 it plans to buy 24.5 tonnes this year to increase gold’s share of its reserves.
While traders are more bullish, gold remains 16 per cent below the record $1,923.70 reached September 6. Prices fell as much as 19 per cent by May 16 from the closing high of $1,891.90 in August, within one percentage point of the common definition of a bear market. Even after boosting bets on a rally, speculators’ net-long position is still 61 per cent below the all-time high of 253,653 contracts set in August.
Demand for physical gold in India, last year’s biggest consumer, remains “lackluster,” UBS AG said in a report June 1. There are still no clear indications of an acceleration in the “fear trade,” with transactions in Europe lagging behind volumes seen last year, UBS analyst Edel Tully wrote in a report on Thursday.
The US Mint sold 18,500 ounces of American Eagle gold coins so far this month, compared with 61,500 ounces for all of June 2011, data on its website show.
Federal reserve
Bullion tumbled this year in part because the Federal Reserve held off from starting a third round of quantitative easing. Chairman Ben S Bernanke said June 7 the Fed will need to assess conditions before deciding if more measures are needed to stoke the economy. Gold futures declined 2.8 per cent on the day, the most in two months.
“The Fed is more likely to disappoint than to offer up another free lunch to the speculative crowd,” said Jon Nadler, an analyst at Kitco Inc., a precious metals refiner and research company in Montreal. Fed policy makers meet June 19-20 to review their economic projections.
Economists at Goldman Sachs Group Inc cut their forecast for second-quarter US growth to 1.6 per cent from 1.8 per cent after a Commerce Department report June 13 showed retail sales fell for a second month. Chicago Fed President Charles Evans said June 11 he would favour “pretty much any accommodative policy,” including buying bonds.
Capital markets
Spain’s credit rating was lowered three steps to Baa3 on June 13 by Moody’s Investors Service, citing the nation’s debt burden, weakening economy and limited access to capital markets. The nation’s bond yields rose to a euro-era record the following day. Group of 20 nations will meet in Los Cabos, Mexico, June 18-19 to discuss the European debt crisis.
In other commodities, 13 of 23 traders and analysts surveyed by Bloomberg expect copper to climb next week and four were neutral. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, fell 2.4 per cent to $7,420 a metric tonne this year.
Six of 15 people surveyed said raw sugar will decline next week and four were neutral. The commodity dropped 16 per cent to 19.63 cents a pound on ICE Futures US in New York this year. Seventeen of 29 people surveyed anticipate higher corn prices next week, while 21 of 28 said soybeans will advance. Corn dropped 20 per cent to $5.1775 a bushel this year as soybeans climbed 9 per cent to $13.1675 a bushel.
Asset management
“Investors’ concerns have shifted from the risk of a severe global economic decline to the central bank response, which is positive,” said Adrian Day, who manages about $160 million of assets as president of Adrian Day Asset Management in Annapolis, Maryland. “Whatever the likely developments in Europe, the result is likely to be easier money, and that’s positive for gold.”