Gold traders are the most bullish in a month after Federal Reserve Chairman Ben S. Bernanke signaled record stimulus will continue until the economy improves.
Twelve analysts surveyed by Bloomberg expect prices to rise next week, with nine bearish and eight neutral, the highest proportion of bulls since April 26. Prices rose 58% since 2008 as the Fed led central banks in debt purchases. Bullion is poised for its first weekly gain in three and trading and investment company Degussa Goldhandel GmbH said demand this month will be double the first-quarter average.
Investors sold 467 metric tons valued at about $21 billion from exchange-traded products this year as some lost faith in gold as a store of value amid an improving U.S. economy and rally in equities. Raising interest rates or curbing bond buying too soon would endanger the recovery, Bernanke said May 22. While prices entered a bear market last month and hedge funds are making the biggest ever bet against the metal, the slump is boosting purchases of jewelry and coins.
“Gold should still be in demand as an alternative currency,” said Daniel Briesemann, a commodities analyst at Commerzbank AG in Frankfurt. “The quantitative easing by central banks should lead to a depreciation in rates for major currencies and in the end should also lead to some inflation concerns, although this is not an issue at the moment. As long as institutional investors are selling gold ETP holdings, this will probably outweigh robust retail demand.”
Gold Prices
The metal fell 17% to $1,387.11 an ounce in London this year after climbing the past 12 years. Gold is the third- worst performer in the Standard & Poor’s GSCI gauge of 24 commodities, after silver and corn. The S&P GSCI dropped 3.7% since the start of January and the MSCI All-Country World Index of equities rose 9.7%. Treasuries lost 0.6%, a Bank of America Corp. index shows.
Bullion rose as much as 2.8% and then fell as much as 1.6% on May 22 after Bernanke expressed concern to Congress that federal budget cuts were blunting the recovery. He said the pace of bond purchases could be reduced in the next few meetings if the jobless rate keeps dropping. Many Fed officials said more progress in the labor market is needed before paring the $85 billion in monthly purchases, minutes of their last meeting showed the same day.
Physical Demand
The metal, which reached a two-year low of $1,321.95 April 16, gained 2.1% this week. Purchases outpaced sales by nine to one after prices began the slump in mid-April, compared with four to one in the first quarter, said Wolfgang Wrzesniok- Rossbach, the chief executive officer of Degussa. Sales this month will be about double the first-quarter average, he said from Frankfurt.
The U.S. Mint sold 209,500 ounces of coins last month, compared with 62,000 ounces in March, its website show. Sales totaled 52,000 ounces so far this month. Central banks also may help boost demand for bullion as they expand reserves. Nations from Brazil to Russia added 534.6 tons last year, the most since 1964, and may buy 450 to 550 tons this year, according to the World Gold Council in London.
The unprecedented money printing by central banks has helped send U.S. equities to records while failing to spur inflation. Expectations for increases in consumer prices, as measured by the break-even rate for 10-year Treasury Inflation Protected Securities, fell 8.1% this year, reaching a nine-month low yesterday.
U.S. Economy
While the International Monetary Fund lowered its 2013 global growth outlook four times since July, the U.S. expansion will accelerate in at least the next four quarters, according to the median of as many as 74 economist estimates compiled by Bloomberg. The dollar climbed to the highest level since July 2010 against six major currencies this week. Gold and the dollar moved in opposite directions in seven of the past nine quarters.
The 2,164.8 tons held by investors through ETPs are now the lowest since July 2011, and this year’s sales now exceed additions in the previous two years, data compiled by Bloomberg show. At least another 435 tons could be sold if the Fed curbs stimulus before the end of the year, Credit Suisse Group AG said in a May 22 report. Prices may reach $1,100 in a year, Ric Deverell, head of commodities research at the bank, said May 16.
Hedge funds and other money managers have never been so bearish. They held 74,432 so-called short contracts in the week to May 14, according to the U.S. Commodity Futures Trading Commission. That’s the highest since the data begins in June 2006. Bullion is now trading 27% below its 2011 record.
‘Double Bottom’
The metal’s plunge after the longest bull rally in at least nine decades has kept it below the 200-day moving average since February. Prices may climb to $1,500 in June after forming a “double bottom,” a pattern that shows a drop, a rebound and then another decline approaching the previous low, according to R.J. O’Brien & Associates.
The price drop is hurting producers contending with rising costs. Barrick Gold Corp., the biggest miner, is considering shrinking in size as it focuses on returns over production volumes, Chief Executive Officer Jamie Sokalsky said May 21 at the Bloomberg Canada Economic Summit in Toronto.
In other commodities, eight of 12 people surveyed expect raw sugar to drop next week and two were neutral. The commodity slid 14% to 16.82 cents a pound on ICE Futures U.S. in New York this year.
Grain Surveys
Fifteen of 30 surveyed anticipate higher corn prices next week and 12 said the grain will drop, while 15 of 31 said soybeans will rise and 12 expect lower prices. Thirteen traders predicted declines in wheat and nine were bullish. July corn fell 5.3% to $6.6025 a bushel this year in Chicago as soybeans rose 6% to $14.935 a bushel. Wheat is down 9.2% at $7.0675 a bushel.
Fifteen traders and analysts surveyed expect copper to climb next week, 12 were bearish and one was neutral. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, slipped 8.1% to $7,285.25 a ton since the start of January.
The S&P GSCI gauge of raw materials fell 2.1percent since reaching a five week high May 20. This year will probably signal “death bells” for the commodities supercycle, or longer-than- average period of rising prices, Citigroup Inc. said in a report that day. Hedge fund wagers on higher prices across 18 commodities are about 33% below the five-year average, CFTC data show.
“Our main view has been for a trough in commodities in the second quarter, with higher values towards year-end,” said Bjarne Schieldrop, the Oslo-based chief commodity analyst at SEB AB. The “expectation is for monetary stimulus to continue through 2013. A U.S. recovery is positive, the question is the time lag before impacting commodities.”
