Gold traders expect prices to rebound from the longest weekly losing streak in eight years as mounting concern that U.S. lawmakers are doing too little to control the budget deficit spurs demand for a protection of wealth.
Twenty analysts surveyed by Bloomberg expect prices to rise next week, five were bearish and a further two were neutral. While hedge funds cut bullish bets to a four-month low last week as prices slid for a fifth week, investors are holding a near-record amount in gold-backed exchange-traded products that are now valued at $138.8 billion, data compiled by Bloomberg show.
Bullion is in its longest run of annual gains in at least nine decades as U.S. lawmakers this week passed legislation that prevented tax increases for most workers and delayed spending cuts by two months. The International Monetary Fund says the country’s debt ceiling ought to be raised “expeditiously.” While Credit Suisse Group AG yesterday said gold will average the most ever this year, it joined Goldman Sachs Group Inc. in predicting the 12-year bull market will probably peak in 2013.
“Euphoria over the fiscal-cliff avoidance could be short lived as all problems are not solved yet,” said Frederique Dubrion, the Geneva-based president and chief investment officer of Blue Star Advisors SA, which manages metals and energy assets. “There’s still a huge amount of debt. Gold is nobody’s liability, it’s the ultimate alternative currency.”
The metal fell 1 percent to $1,647.35 an ounce today after U.S. Federal Reserve policy makers said they’ll probably end asset purchases this year, according to the record of the Federal Open Market Committee’s Dec. 11-12 gathering released late yesterday. While gold rose 7.1 percent last year, it’s set for a sixth weekly loss, the worst run since May 2004. The Standard & Poor’s GSCI gauge of 24 commodities added 0.3 percent in 2012 and the MSCI All-Country World Index of equities climbed 13 percent. Treasuries returned 2.2 percent, a Bank of America Corp. index shows.
The U.S. House of Representatives passed legislation on Jan. 1, breaking an impasse over how to prevent more than $600 billion in tax increases and spending cuts from coming into force. The so-called fiscal cliff had threatened to push the world’s largest economy into a recession. The budget package passed by Congress won’t reduce deficits enough to avoid a sovereign-rating downgrade, Moody’s Investors Service said.
Gold will reach $2,000 this year, according to a Bloomberg survey of 49 traders and analysts last month, as investors hedge against inflation and weaker currencies. The Fed said Dec. 12 it would buy $45 billion of Treasury securities a month from January. The yen fell to the lowest since 2010 against the dollar today after the Fed’s minutes and amid speculation the Bank of Japan will heed government calls to boost money printing.
Investors bought 60 percent more through gold ETPs last year compared with 2011 and now hold 11.7 metric tons below the record 2,632.5 tons set Dec. 20. The holdings are equal to almost a year of mine production, data compiled by Bloomberg and Barclays Plc show. Nations from Brazil to Iraq to Russia are also buying metal to add to official reserves, according to data compiled by the IMF.
While Credit Suisse forecasts a 2013 average of $1,740, it expects improved economic growth later this year to curb gold’s appeal and sees prices averaging $1,720 in 2014. Goldman’s analysts said Dec. 5 that prices will peak this year because of improving U.S. growth, even as the Fed expands stimulus.
The metal will average $1,600 this year, according to Rene Hochreiter, a director of Johannesburg-based Allan Hochreiter (Pty) Ltd. and the most accurate forecaster in the London Bullion Market Association’s 2012 gold survey. That would be 4.1 percent below last year’s all-time high average.
Speculators cut their bullish bets by 49 percent since October and held a net-long position of 101,922 futures and options in the week to Dec. 24, the least since Aug. 14, U.S. Commodity Futures Trading Commission data show. U.S. Mint sales of American Eagle gold coins fell 44 percent to 76,000 ounces in December and full-year sales were 25 percent lower than in 2011, data on its website show.
Physical demand may slow elsewhere. India’s Finance Minister Palaniappan Chidambaram said Jan. 2 that 2011’s biggest buying nation may raise taxes on gold imports to reduce the current-account deficit. India bought 24 percent less in the first nine months of last year as gold priced in rupees reached a record, according to the London-based World Gold Council.
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