Gold’s 12-year rally, the longest in at least nine decades, is poised to continue in 2013 as central bank stimulus spurs investors from John Paulson to George Soros to accumulate the highest combined bullion holdings ever.
The metal will rise every quarter next year and average $1,925 an ounce in the final three months, or 11 per cent more than now, according to the median of 16 analyst estimates compiled by Bloomberg. Paulson & Co has a $3.67 billion bet through the SPDR Gold Trust (GLD), the biggest gold-backed exchange- traded product, and Soros Fund Management LLC increased its holdings by 49 per cent in the third quarter, US Securities and Exchange Commission filings show.
Central banks from Europe to China are pledging more steps to boost growth, raising concern about inflation and currency devaluation. Investors bought 247.5 metric tonnes through ETPs this year, exceeding annual US mine output. While both sides said talks November 16 between President Barack Obama and Congress over the so-called fiscal cliff were “constructive,” the Congressional Budget Office has warned the US risks a recession if spending cuts and tax rises aren’t resolved.
“We see gold as a hedge against the follies of politicians,” said Michael Mullaney, who helps manage $9.5 billion of assets as chief investment officer at Fiduciary Trust in Boston. “It’s a good time to garner some protection in portfolios by having some real asset like gold.”
Longest streak
Gold advanced 11 per cent to $1,733.15 in London this year, headed for a 12th consecutive annual gain, the longest streak in data compiled by Bloomberg going back to 1920. Prices reached a record $1,921.15 in September 2011. The Standard & Poor’s GSCI gauge of 24 commodities gained 0.6 per cent and the MSCI All-Country World Index (MXWD) of equities climbed eight per cent. Treasuries returned 2.7 per cent, a Bank of America Corp. index shows.
Bullion held through ETPs, the first of which listed in 2003, reached a record 2,604.2 tonnes yesterday, valued at $145.1 billion. That exceeds the official reserves of every nation except the US and Germany, World Gold Council data show. The SPDR Gold Trust alone holds 1,342.2 tonnes.
Soros increased his investment in the trust to 1.32 million shares in the third quarter, the most since 2010, a November 14 SEC filing showed. The stake, with each share representing about a 10th of an ounce, is valued at $221.7 million. Prices advanced 60 per cent since January 2010, when Soros called gold the “ultimate asset bubble.” Michael Vachon, a spokesman for the 82-year-old who made $1 billion breaking the Bank of England’s defense of the pound in 1992, declined to comment.
Official reserves
Paulson, who became a billionaire in 2007 by wagering against the subprime mortgage market, owns 21.8 million shares in the SPDR Gold Trust, making him the biggest shareholder, a November 15 SEC filing showed. The 56-year-old raised his stake by 26 per cent in the second quarter and his holding of about 66 tonnes exceeds the official reserves of nations from Brazil to Bulgaria to Bolivia.
The New York-based hedge fund company reduced its investments in Anglogold Ashanti Ltd (ANG) and Gold Fields Ltd, the third- and fourth-biggest producers. Armel Leslie of Walek & Associates, a spokesman for Paulson’s fund, declined to comment.
Paul Touradji’s Touradji Capital Management LP sold all of its 82,000 shares in the SPDR Gold Trust in the third quarter, according to an SEC filing. Lone Pine Capital LLC, the hedge fund run by Stephen Mandel Jr, cut its stake by 31 per cent to 2.6 million shares, and Dan Loeb’s Third Point LLC lowered its bet by 10 per cent to 130,000 shares, filings showed last week. Officials from all three companies declined to comment.
Eight strategists
While some investors expect stimulus to devalue currencies, the median of eight strategist estimates compiled by Bloomberg show the US Dollar Index, a measure against six major trading partners, will average 82.6 next year, from 80.9 now. Steven Englander, Citigroup Inc’s head of G-10 strategy, said in an interview this month that the currency market is signaling it isn’t yet convinced the Federal Reserve will fulfill its pledge to pump record amounts of cash into the economy through 2015.
Third-quarter demand for gold fell 11 per cent, the most since 2009, as China’s slowing growth curbed purchases, the London-based World Gold Council said November 15. India, the biggest buyer in the quarter, consumed 24 per cent less in the year’s first nine months as bullion priced in rupees reached a record in September. The Washington-based International Monetary Fund cut its 2013 forecast for world growth twice since July, to 3.6 per cent.
Inflation adjusted
While prices rose 25 per cent since November 2010, the size of the futures market, based on contracts outstanding, fell 30 per cent, bourse data show. The metal, down 3.5 per cent from this year’s high, has yet to exceed previous records when adjusted for inflation, with its 1980 record of $850 equal to $2,398 today, data compiled by the Fed Bank of Minneapolis show.
