Gold traders are the most bearish in 3 1/2 years after prices fell to the lowest since 2010 following Federal Reserve Chairman Ben S. Bernanke’s comments that the central bank may start curbing stimulus.
Fifteen analysts surveyed by Bloomberg expect prices to fall next week, with six bullish and five neutral, the largest proportion of bears since January 2010. The metal slumped below $1,300 an ounce for the first time since September 2010 yesterday. Investors sold 525.9 metric tons valued at about $21.9 billion from exchange-traded products this year.
Gold as much as doubled since 2008 as quantitative easing swelled the Fed’s balance sheet to a record $3.41 trillion. Bernanke said June 19 the central bank may start reducing the $85 billion in monthly debt buying this year and end the program in 2014. Bullion is heading for its first annual drop since 2000 after some investors lost faith in the metal as a store of value.
“The comments by the Fed are really the last signal for the soft hands that the bull market in gold is ending,” said Frederique Dubrion, the Geneva-based president and chief investment officer of Blue Star Advisors SA, which manages metals and energy assets. “One of the appeals of gold, especially since 2008, was because of quantitative easing. That they are going to slow down the pace of purchasing is not a good signal for gold.”
The metal reached $1,269.46 in London today, the lowest since September 2010, before rebounding for the first gain this week. This year’s 23% slump to $1,293.14 is set to be the worst since 1981. The Standard & Poor’s GSCI gauge of 24 commodities dropped 5.9% since the start of January and the MSCI All-Country World Index of equities rose 3%. Treasuries lost 2.4%, a Bank of America Corp. index shows.
The yield on the benchmark 10-year Treasury note rose to 2.51% today, the highest since August 2011, two days after Bernanke’s comments indicated the Fed sees the economy healing from a burst credit bubble. The 1.7% growth in the U.S. economy this quarter will accelerate in the next five quarters, economist estimates compiled by Bloomberg show.
The 2,106.1 tons of bullion held through ETPs is the lowest since March 2011, data compiled by Bloomberg show. Billionaire John Paulson, the biggest investor in the SPDR Gold Trust, the largest gold ETP, had a 13% loss in his Gold Fund last month. The slump also hurt Newcrest Mining Ltd. Australia’s top gold producer, which said this month it will write down the value of its assets by as much as A$6 billion ($5.5 billion).
Investors are dumping gold because the unprecedented money printing by central banks around the world that pushed U.S. equities to a record last month has so far failed to spur inflation. Expectations for increases in consumer prices, as measured by the break-even rate for 10-year Treasury Inflation Protected Securities, fell 20% this year, reaching a 17- month low today.
The surge in coin and jewelry demand seen in April when prices entered a bear market may not be repeated to the same extent now, said Walter de Wet, an analyst at Standard Bank Plc in Johannesburg. India, the top buyer, raised gold import taxes earlier this month to contain a record current-account deficit. Physical demand in North America and Europe has dropped 80% from April, Kitco Metals Inc. said in a June 18 report.
The U.S. Mint sold 34,500 ounces of American Eagle gold coins so far this month, compared with 70,000 ounces in May and 209,500 ounces in April, data on its website show. It still predicted this month that gold and silver coin sales may reach a record this year and the Austrian Mint said it expects “quite good business” in the next couple of months.
The Fed’s forecasts still showed most officials don’t expect to begin raising the benchmark lending rate from a record-low of zero to 0.25% until 2015. The Bank of Japan restated last week its April pledge to increase the monetary base by 60 trillion to 70 trillion yen ($715 billion) a year. European Central Bank President Mario Draghi said policy makers stand ready to act further if economic conditions worsen.
“The sell off from the Fed’s announcement, as well as recent declines on concern about an impending Fed easing of stimulus, is overdone,” said Adrian Day, who manages about $135 million of assets as the president of Adrian Day Asset Management in Annapolis, Maryland. “Monetary policy globally remains very accommodative.”
Bullion’s 14-day relative strength index was at 28.9 today, below the level of 30 that indicates to some analysts who study technical charts that a rebound may be imminent. When the measure settled below 30 in May, prices rose as much as 6.4% in the following three weeks.
Hedge funds and other large speculators cut their net-long position by 4.1% to 54,779 contracts in the week to June 11, U.S. Commodity Futures Trading Commission data show. That’s still up 54% from May 21, when bets on higher prices were at the lowest in almost six years.
Gold may drop to $1,250 in a month, UBS AG wrote in a report yesterday, while Ric Deverell, head of commodities research at Credit Suisse Group AG, said prices will probably fall to about $1,100 in a year. Nouriel Roubini, professor of economics and international business at New York University, has forecast a decline toward $1,000 by 2015. The metal reached a record $1,921.15 in September 2011.
In other commodities, six of 10 people surveyed expect raw sugar to rise next week and one was neutral. The commodity slid 13% to 16.89 cents a pound on ICE Futures U.S. in New York this year.
Fourteen of 25 surveyed anticipate lower corn prices and eight said the grain will gain, while 15 of 26 said soybeans will drop and 10 expect higher prices. Twelve traders predicted declines in wheat and six were bullish. Corn slid 20% to $5.6125 a bushel this year in Chicago. The December contract, which reflects supply after the U.S. harvest, is down 6.4% this year. Soybeans fell 9.3% to $12.7825 a bushel, as wheat slipped 8.9% to $7.0875 a bushel.
Fourteen traders and analysts surveyed expect copper to drop next week, five were bullish and four were neutral. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, fell 14% to $6,820.25 a ton this year.
The S&P GSCI gauge of commodities slipped 10% since mid-February and Deutsche Bank AG said in a June 18 report that prices are poised to remain in “subdued territory for years to come.” The MSCI All-Country World Index fell to the lowest in three months this week following Bernanke’s comments and as a private report showed manufacturing shrank at a faster pace in China, the biggest user of everything from copper to coal.
“There’s definitely a bearish sentiment in the market” following the Fed outlook, said Tom Pugh, a commodities economist at Capital Economics Ltd. in London. “We also just had the Chinese PMI numbers, which were obviously weak. That’s not so damaging for agricultural markets as it is for things like industrial metals.”