Societe Generale is predicting a fourth-quarter average of $1,375, the lowest for the period in three years, and Goldman Sachs expects the metal to trade at $1,390 in 12 months. Investors pulled a record $20.8 billion from bullion funds this year, according to Cambridge, Massachusetts-based EPFR Global, which tracks money flows. Hedge funds’ bets on further declines are about four times the average of the past six years, according to U.S. Commodity Futures Trading Commission data.
Slumping prices spurred demand for physical metal, with the U.S. Mint saying April 23 it ran out of its smallest gold coins. Australia’s Perth Mint said volumes jumped to a five-year high. India’s bullion imports may surge 47% to 225 tons in the second quarter to meet consumer buying, according to the All India Gems & Jewellery Trade Federation. Imports by China from Hong Kong more than doubled to an all-time high in March.
Prices that rallied 8% since reaching a two-year low of $1,321.50 on April 16 may boost the supply of scrap. Gold will “grind higher” on physical demand and buying by central banks for reserves, James Steel, an analyst at HSBC Securities (USA) Inc., said at a conference in New York on April 30.
“Physical demand or the scrap market is not the main indicator for prices as the paper market dwarfs both these markets,” said Stanley Crouch, who helps oversee $2 billion of assets as chief investment officer at New York-based Aegis Capital Corp. “Expectations about physical demand helping prices to rebound will be short-lived as the macro reasons will push prices further down.”
Holdings in exchange traded funds backed by the metal were 2,228 metric tons as of last week and were larger than any except those held by the U.S., Germany, the International Monetary Fund and Italy and France. The amount linked to futures contracts was about 1,371 tons as of May 10.
While customer traffic already is “a little better” at Manhattan Buyers, it is still down by as much as half from a year ago, according to Abramov. More scrap will become available as prices stabilize, he said. The volatility meant the shop had to reduce its purchase price relative to the global benchmark set daily in London. Sellers were getting about $200 to $300 an ounce less by mid-April than they were at the start of the month.
“That money means something to a lot of people,” Abramov said. “A lot of them are waiting for prices to come back.”
Billionaire John Paulson is standing by the metal even after his Gold Fund saw declines of about 47% this year, according to two people familiar with the matter. Paulson & Co. is the biggest investor in the SPDR Gold Trust, the largest bullion ETP. Central-bank stimulus around the world will help prices rally to $1,700 by the end of this year, JPMorgan Cazenove analyst Allan Cooke said in a May 8 report.