Gold bears return as ETP rout extends to 17th week

Write Down

Gold’s plunge is also hurting producers already contending with rising costs. Newcrest, Australia’s largest gold producer, said last week it will write down the value of its assets by as much as A$6 billion ($5.9 billion) after the slump. The 30- member Philadelphia Stock Exchange Gold and Silver Index slid 37% this year.

Data released last week showed U.S. payrolls increased more than forecast in May and Federal Reserve Chairman Ben S. Bernanke said last month that the central bank could curtail its $85 billion monthly bond purchases if the economy improves. The World Bank raised its 2013 U.S. growth forecast on June 12 to 2%, from 1.9% in January, even as it cut its estimate for the global economy to 2.2%, from 2.4%.

U.S. Stimulus

Bullion rose 58% since 2008 as the Fed led a global surge in money printing to boost growth. While the U.S. central bank will slow purchases, it will still buy $65 billion a month by October, the median of 59 economist estimates compiled by Bloomberg this month shows. The Bank of Japan restated its April pledge this week to increase the monetary base by 60 trillion to 70 trillion yen ($742 billion) a year, and refrained from adding extra policy tools to counter bond-market volatility.

“Global fundamentals, including accommodative monetary policy, remain positive for gold,” said Adrian Day, who manages about $135 million of assets as the president of Adrian Day Asset Management in Annapolis, Maryland. “The market is slowly realizing that despite all the talk about tapering of bond buying by the Fed, there will be no meaningful global tightening any time soon.”

The surge in equities over the past three quarters, which also damped demand for gold, is now partially reversing. The MSCI All-Country World Index reached a seven-week low yesterday. The U.S. Dollar Index, a measure against six currencies, slipped to the weakest in almost four months.

Money Managers

Hedge funds and other large speculators got more positive in the past two weeks after reducing bullish bets to the lowest in almost six years, U.S. Commodity Futures Trading Commission data show. They increased their net-long position by 60% to 57,113 contracts in the two weeks to June 4.

There are still signs that lower prices are boosting physical buying. The U.K.’s Royal Mint, which saw its gold-coin sales triple in April, said last week the “steep increase” in demand continued in the past several weeks. The U.S. Mint predicted last week that its gold and silver coin sales may reach a record in 2013, and the Austrian Mint said it expects “quite good business” in the next couple of months.

Gold’s 60-day historical volatility reached 28.9% today, the highest since December 2011, data compiled by Bloomberg show. That compares with an average of 20.6% in the past five years.

In other commodities, six of 11 people surveyed expect raw sugar to drop next week and two were neutral. The commodity slid 14% to 16.85 cents a pound on ICE Futures U.S. in New York this year.

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