Gold bears braced for U.S. to China growth recovery

Reduced Holdings

Gold ETP assets reached a record 2,632.5 metric tons on Dec. 20 as policy makers from the Federal Reserve to the Bank of Japan pledged more action to stimulate growth. Holdings are down 0.9% this year, while silver products rose 3%, platinum 9.9% and palladium 13%, data compiled by Bloomberg show.

Soros Fund Management reduced its investment in the SPDR Gold Trust, the biggest fund backed by the metal, by 55% to 600,000 shares as of Dec. 31 from three months earlier, a U.S. Securities and Exchange Commission filing showed yesterday. Bacon’s Moore Capital Management LP sold its entire stake in the SPDR fund and lowered holdings in the Sprott Physical Gold Trust. Paulson & Co., the largest investor in SPDR, kept its stake at 21.8 million shares, a filing showed.

2011 Peak

Bullion is unlikely to return to its September 2011 high of $1,921.15 because of accelerating U.S. growth and contained inflation, Credit Suisse said in a Feb. 1 report. Goldman forecast in a Jan. 18 report that gold will climb to $1,825 in three months and peak this year.

U.S. economic growth will accelerate every quarter this year to a median 2.7% in the final three months, according to 87 estimates compiled by Bloomberg. China’s expansion will pick up to a median 8.3% in the third quarter from 8.1% in the first, according to 34 estimates compiled by Bloomberg.

Even as the recession in Europe deepened more than economists forecast last quarter and Japan’s economy shrank, the International Monetary Fund predicts global growth will climb to 3.5% this year from 3.2% in 2012.

“There’s a lack of imminent financial disasters at the moment,” said John Meyer, an analyst at SP Angel Corporate Finance LLP, a broker and adviser in London. “Investors are going for a more risk-on approach and that tends to lead them away from gold.”

Inflation

Gold generally earns returns only through price gains and some investors buy it as a hedge against inflation and currency declines. While consumer-price gains are below the Fed’s 2% target, inflation expectations measured by the break- even rate for five-year Treasury Inflation Protected Securities rose 13% this year and reached a four-month high Feb. 6.

Finance ministers from the Group of 20 gather this weekend in Moscow amid concern of a fresh “currency war” as countries weaken their exchange rates to make exports more competitive.

“The monetary backdrop is still extremely positive for gold, so we would be accumulating here,” said Adrian Day, the president of Adrian Day Asset Management in Annapolis, Maryland.

Buying also may pick up as China’s markets open after this week’s New Year holiday. China accounted for about 25% of consumer gold demand last year and narrowed the gap between top buyer India to the smallest ever, the London-based World Gold Council said yesterday. The group said consumption from both countries may rise at least 11% in 2013.

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