July 31 (Bloomberg) -- The only three analysts to correctly predict gold’s biggest quarterly slump in four years are now split, reflecting investors’ diverging views on the probability of central banks doing more to shore up growth.
Justin Smirk of Westpac Banking Corp., the most accurate of 20 analysts tracked by Bloomberg in the second quarter, says prices will keep dropping. Eugen Weinberg of Commerzbank AG and Nick Trevethan at ANZ Banking Group Ltd. predict a record within a year. Hedge funds and other speculators are the least bullish since 2008, even with investor holdings of physical bullion in exchange-traded products close to an all-time high, government data and figures compiled by Bloomberg show.
While gold has rallied since tumbling to within 1 percent of a bear market in May, it’s still 16 percent below the record $1,923.70 an ounce reached on Sept. 6. Investors have favored sovereign debt and the dollar to protect their wealth as economic growth slows, driving yields to record lows and the U.S. currency to a two-year high. Central banks from Europe to China cut interest rates this month, and the Federal Reserve said it was prepared to act to boost the recovery.
“There is not much interest in gold right now given the fears of economic slowdown globally,” said Michael Cuggino, who manages $17 billion of assets at Permanent Portfolio Funds in San Francisco, with about 20 percent of his investments in gold. “The velocity of the money has not yet entered the system, but one has to buy gold as it is a long-term play and will keep rising as you need insurance against future inflation.”
Futures fell 4 percent from April to June on the Comex in New York, the most since the third quarter of 2008. The U.S. Dollar Index advanced 3.3 percent and bonds of all types returned an average of 1.6 percent, according to Bank of America Merrill Lynch’s Global Broad Market Index.
Gold is now 3.8 percent higher for the year at $1,625.50. The Standard & Poor’s GSCI Spot Index of 24 commodities fell 0.3 percent, the MSCI All-Country World Index of equities added 5.8 percent, and the Dollar Index, a measure against six trading partners, advanced 3.2 percent. Treasuries returned 2.7 percent, a Bank of America gauge shows. The yield on the benchmark 10- year security fell to a record low of 1.379 percent on July 25, Bloomberg Trader data show.
Bullion has appreciated for 11 consecutive years, with prices surging sevenfold as investors sought a hedge against everything from accelerating inflation to Europe’s debt crisis to slumping equities. The metal rose about 70 percent as the Federal Reserve bought $2.3 trillion of debt in two rounds of so-called quantitative easing from December 2008 through June 2011. Gold’s year-to-date gain is the smallest for the period since 2005, a sign that investor demand may be waning.