Gold traders more bullish as holdings set record

Hoard climbs to new highs

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Gold traders are the most bullish in three weeks as investors’ bullion holdings rose to a record on mounting speculation that central banks will add more stimulus to bolster economic growth.

Fourteen of 26 analysts surveyed by Bloomberg expect prices to rise next week, nine were bearish and three were neutral. Investors boosted holdings in exchange-traded products to an all-time high of 2,584.5 metric tons on Oct. 24, valued at $142.4 billion, data compiled by Bloomberg show. Hedge funds’ bets on a rally are near the biggest in more than a year, according to U.S. Commodity Futures Trading Commission data.

Central banks from Europe to China to the U.S. have pledged to do more to boost economies. The yen reached a four-month low versus the dollar this week on speculation the Bank of Japan will further expand stimulus and the Federal Reserve said it plans to continue buying bonds. 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.

“The whole economic situation is going to get worse rather than better,” said Thorsten Polleit, chief economist at Degussa Goldhandel GmbH, a precious metal trading and investment company in Frankfurt. “Paper currencies have already lost their function as a store of value and it’s getting worse. People are increasingly putting their savings into precious metals.”

Gold Prices

Gold rose 9.6 percent to $1,713.98 an ounce in London this year, advancing for a 12th consecutive year, the longest winning streak in at least nine decades. October’s average of $1,751 is set to be the third-highest month ever. The Standard & Poor’s GSCI gauge of 24commodities lost 0.9 percent since the start of January and the MSCI All-Country World Index of equities climbed 10 percent. Treasuries returned 1.7 percent, a Bank of America Corp. index shows.

The BOJ, which holds a policy meeting Oct. 30, will consider raising its asset-purchase program by 10 trillion yen ($125 billion) to 90 trillion yen, the Nikkei newspaper reported yesterday. The Fed said Oct. 24 it will maintain $40 billion in monthly purchases of mortgage debt and probably hold interest rates near zero until mid-2015. The European Central Bank has said it is ready to buy bonds of indebted nations and China approved a $158 billion subways-to-roads construction plan.

Some investors buy bullion as a hedge against inflation and a weaker dollar, and the metal generally earns returns only through price gains, increasing its allure as interest rates decline. Inflation expectations measured by the break-even rate for five-year Treasury Inflation Protected Securities jumped 35 percent this year and reached a 16-month high in September.

Investors Buy

Gold ETP holdings gained 7.9 percent since the end of July and now account for almost a year of mine production, according to data compiled by Bloomberg and Barclays Plc. Speculators’ wagers on a rally were the highest since August 2011 in the week to Oct. 9, CFTC data show. They cut their net-long position by 7 percent to 184,404 futures and options by Oct. 16, data show.

Gold dropped below $1,700 this week as “fatigue set in” among fund managers after they boosted bets and as prices failed to reach $1,800, said Edel Tully, an analyst at UBS AG in London. Higher prices also curbed physical demand, said Walter de Wet, an analyst at Standard Bank Plc in Johannesburg.

The U.S. Mint sold 48,500 ounces of American Eagle gold coins so far this month, 29 percent fewer than throughout September, data on its website show. This year’s sales of 530,000 ounces are down 41 percent from the same period in 2011.

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