Gold bugs defy bear-market threat with Soros buying

Goldman Predicts

In October, Bank of America forecast $2,000 by early 2012. Goldman predicted in December that gold would reach $1,840 by early June. Barclays and Morgan Stanley said in January that it would average $1,850 and $1,810 this quarter. The metal actually averaged $1,619 since the end of March. Goldman now expects prices to reach $1,940 in 12 months. Barclays predicts an average of $1,790 in the fourth quarter, and Morgan Stanley forecasts $2,000 in the final three months.

Bullion is heading for a 12th straight annual gain, after temporarily giving up its gains for the year last month. The metal rose almost sixfold since the end of 2000, beating the 24 percent advance in the S&P 500, with dividends reinvested, and the 90 percent return on Treasuries. The Dollar Index fell 25 percent.

While gold’s four-month drop from February is the longest since the start of the bull market, it’s not the biggest. Futures fell 21 percent in a month in 2006 and 30 percent over eight months in 2008, before rallying to end higher for the year. The 2,375.8 metric tons held in ETPs exceeds official reserves in all but four nations tracked by the International Monetary Fund, and the amount is within 1.5 percent of the record 2,410.2 tons reached in March.

‘Last Resort’

“Gold remains the currency of last resort,” said Jeff Currie, the New York-based head of commodity research at Goldman, which predicts $1,840 by the end of the year. “The case for higher gold prices remains intact.”

Greek voters return to the polls on June 17 after elections on May 6 failed to produce a government. Syriza, a party proposing to cancel the terms of an international bailout and restore pensions and wages, was propelled into second place, increasing prospects that the 17-nation euro would fracture. Those concerns were partially allayed last week after Irish voters backed the EU’s fiscal treaty.

Central banks, the world’s biggest owners of gold, have added to their reserves for 14 consecutive months through March, the longest streak since 1964, IMF data show. Investor demand for gold coins is accelerating, with sales of American Eagles more than doubling to 53,000 ounces last month, according to figures on the U.S. Mint’s website. The 10 most widely held options confer the right to buy bullion at prices from $1,800 to $2,500 between July and March 2013, Comex data show.

‘Asset Bubble’

Soros Fund Management LLC, founded by the 81-year-old billionaire, more than tripled its investment in the SPDR Gold Trust in the first quarter to 319,550 shares now valued at $50.2 million, an SEC filing May 15 showed. It held as few as 42,800 shares last year and as many as 6.2 million at the end of 2009. Soros called gold the “ultimate asset bubble” in January 2010. Michael Vachon, a spokesman for Soros, didn’t respond to a voicemail for comment.

Paulson & Co., founded by the 56-year-old investor who became a billionaire in 2007 by wagering against the subprime mortgage market, still holds 17.3 million shares in the SPDR Gold Trust, now valued at $2.72 billion, an SEC filing on May 15 showed. Paulson is seeking to reverse record losses last year caused by an ill-timed bet on an economic recovery. Armel Leslie, a spokesman for Paulson, declined to comment.

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