Gold traders are becoming more bullish as concern mounts that a worsening of Europe’s debt crisis will spur demand for a protection of wealth at a time when nations from the U.S. to Japan are signaling more stimulus.
Sixteen analysts surveyed by Bloomberg expect prices to gain next week, while seven were bearish and two were neutral. That’s the highest proportion of bulls since March 8. Prices reached a three-week high of $1,617.07 an ounce this week as Cypriot lawmakers rejected an unprecedented levy on bank deposits that had been proposed in return for external aid.
Turmoil in Cyprus is hurting Europe’s chances of recovering from recession. The European Central Bank said it will cut the island’s banks off from emergency funds after March 25 unless it agrees on a bailout. Investors sold gold holdings and hedge funds cut bets on price gains this year amid signs the U.S. economy is improving and as Federal Reserve policy makers debated the pace of stimulus. The U.S. central bank said March 20 that it will maintain asset purchases to spur growth.
“There’s a dawning realization that the crisis is unfortunately far from over in Europe,” said Mark O’Byrne, the executive director of Dublin-based GoldCore Ltd., a brokerage that sells and stores bullion coins and bars. “Ultra-loose monetary policies are set to continue for the foreseeable future and that would suggest that gold prices could go higher as long as that’s the case.”
Gold Price
The metal is down 4% this year in London after 12 straight annual gains, the best run in at least nine decades. It was at $1,608.60 today. The Standard & Poor’s GSCI gauge of 24 commodities lost 0.1% this year and the MSCI All-Country World Index of equities gained 5.1%. Treasuries lost 0.5%, a Bank of America Corp. index shows.
Cyprus is seeking to overcome a deadlock after its lawmakers rejected a 5.8 billion-euro ($7.5 billion) levy on bank deposits imposed by euro-area finance ministers as a condition for a 10 billion-euro rescue. A bank holiday there was extended to March 25, giving policy makers until that day to find a compromise to prevent a collapse of the country’s banks.
“Monetary easing as well as Europe back on the front pages following the Cyprus fiasco are supportive,” said Adrian Day, the president of Adrian Day Asset Management in Annapolis, Maryland. “Gold will continue its slow but steady recovery.”
Concerns about Cyprus and political turmoil in Italy may hinder a recovery in Europe. ECB President Mario Draghi said earlier this month that the euro region will gradually rebound later in 2013 from its second recession in four years. Euro-area services and manufacturing output contracted more than economists estimated in March, a Markit Economics report yesterday showed.
Record Average
Gold, which generally earns returns only through price gains, averaged a record $1,669 last year as nations pledged more stimulus to bolster growth. Banco de la Ciudad de Buenos Aires, Argentina’s only gold trader, is talking with mining companies to buy the metal directly as surging demand from customers seeking protection from faster inflation exhausts its supply of scrap, Carlos Leiza, director of the bank’s secured loans unit, said in a March 11 interview.
Japan’s central bank governor Haruhiko Kuroda vowed yesterday to pursue bold monetary easing. Fed Chairman Ben S. Bernanke steered clear two days ago of any suggestion that a reduction in $85 billion in monthly bond buying is imminent. The central bank said it will leave its key interest rate near zero as long as unemployment remains above 6.5% and the outlook for inflation is less than 2.5%.
Equity Markets
Gold slid the previous five months in the worst run since 1997 on speculation the U.S. would curb stimulus as signs of a recovery boosted equity markets. Gold is unlikely to return to its September 2011 record of $1,921.15, Credit Suisse Group AG said last month. Barclays Plc and Societe Generale SA are among banks predicting the bull market has, or is close to, peaking.
About $6.4 trillion was added to the value of global equities since November as China accelerated for the first time in two years. The International Monetary Fund predicts global expansion will climb to 3.5% in 2013 from 3.2% in 2012. U.S. unemployment fell to a four-year low of 7.7% last month, as job growth surged, Labor Department data show.
Investors sold 179.5 metric tons of gold valued at $9.3 billion from exchange-traded products since holdings reached a record in December, data compiled by Bloomberg show. Assets reached an almost seven-month low of 2,452.2 tons on March 20. The U.S. Mint sold 36,500 ounces of American Eagle gold coins this month, compared with 80,500 for all of February and 150,000 in January, its website show.
Hedge Funds
Speculators held a net-long position, or bets on higher prices, of 43,195 futures and options as of March 12, U.S. Commodity Futures Trading Commission data show. That’s up 9% from the previous week, when they were the least bullish since July 2007.
Bullion slid to a seven-month low of $1,555.55 on Feb. 21. It retreated to $1,522.65 in December 2011, before rebounding to $1,796.05 in October. It’s too early to call an end of the bull market, Commerzbank AG said in a report yesterday, citing low interest rates, currency devaluation and gold purchases by central banks. Nations added 534.6 tons to reserves last year, the most since 1964, the London-based World Gold Council says.
In other commodities, 14 of 23 traders and analysts surveyed expect copper to rise next week, seven were bearish and two were neutral. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, slipped 3.4% to $7,659.75 a ton this year.
Six of 11 people surveyed expect raw sugar to fall next week and four predict a gain. The commodity slid 6.4% to 18.26 cents a pound on ICE Futures U.S. in New York this year.
Grain Surveys
Fifteen of 28 of those surveyed anticipate a rise in corn prices next week and 11 said the grain will drop, while 13 said soybeans will fall and 10 expect higher prices. Fourteen of 25 traders predicted rising wheat and nine were bearish. Corn rose 4.5% to $7.295 a bushel this year in Chicago as soybeans added 2.6% to $14.4675 a bushel. Wheat is down 6.7% at $7.2625 a bushel.
The S&P GSCI gauge of raw materials gained 1.3% since falling to a 10-week low on March 4. Investors increased wagers on a rally across 18 U.S. commodities by 30% in the week to March 12, the most in eight months, CFTC data show.
“We see the current correction as a good buying opportunity and expect industrial metals to be the sector with the best potential,” said Filip Petersson, a commodities strategist at SEB AB in Stockholm. “The U.S. economy is showing strength and China is stable. I expect sentiment to remain quite optimistic.”
