Gold traders are the least bullish in four weeks as jewelry purchases slowed.
Thirteen analysts surveyed by Bloomberg expect prices to rise next week, 10 were bearish and seven neutral, the lowest proportion of bulls since June 28. Bullion rose 7.8% in July, setting a one-month high of $1,348.65 an ounce on July 24.
Jewelry makes up almost half of global gold demand and has become more important to keep prices from falling after investors reduced exchange-traded-product holdings by 25% this year. Gold is heading for the first annual drop in 13 years after some investors lost faith in the metal as a store of value. Physical purchases of gold have been slowing in the past two weeks as higher prices deterred demand, according to Standard Bank Group Ltd.
“The slowdown is mainly coming from China, where demand ramped up quite strongly a month ago,” said Marc Ground, a commodity strategist at Standard Bank in Johannesburg. “Physical demand puts lines underneath how far gold can fall, but for sustainable rallies you need investment demand. Without physical demand, gold would be lower than it is and without investment it could really crash.”
The metal fell 21% to $1,319.61 in London this year, rebounding from a 34-month low of $1,180.50 on June 28. The 23% drop in the second quarter was the most since at least 1920. The Standard & Poor’s GSCI gauge of 24 commodities lost 1.5% since the start of January and the MSCI All-Country World Index of equities gained 11%. Treasuries declined 2.8%, a Bank of America Corp. index shows.
Prices are heading for the biggest monthly gain since January 2012 on speculation the U.S. Federal Reserve will maintain stimulus. Fed Chairman Ben S. Bernanke said last week it’s too early to decide whether to begin scaling back debt purchases in September, after saying on June 19 that bond buying could slow if the economy improves.
The Bloomberg Dollar Index, a measure against 10 major currencies, fell 2.8% since reaching a three-year high on July 8. Bullion, which typically moves inversely to the greenback, more than doubled from 2008 to a record $1,921.15 in September 2011 as the Fed bought more than $2 trillion of debt.
The metal’s slide into a bear market in April spurred more jewelry and coin buying, pushing prices up as much as 13% in three weeks before the retreat resumed. India, the world’s largest buyer, this week added restrictions on imports. Inbound shipments may tumble 63% in the second half of this year, said Bachhraj Bamalwa, a director at the All India Gems & Jewellery Trade Federation.
Gold supply from recycled materials may fall as much as 25% in 2013 from 1,600 metric tons in 2012 as this year’s slump, set to be the biggest since 1997, deters holders from selling the metal, Marcus Grubb, managing director of investment research at the World Gold Council in London, said in an interview this week. Central banks will add about another 400 tons to gold reserves this year after buying almost 535 tons last year, the most since 1964, he said.
The central-bank buying won’t be enough to prevent further declines, Goldman Sachs Group Inc. wrote in a July 24 report. Prices will probably trade near $1,300 until the end of this year before dropping to $1,050 by December 2014 on a stronger U.S. economy and reduced monetary policy, the bank estimates.
Bullion fell in eight of the previous nine months because the unprecedented money printing by central banks that helped push U.S. equities to a record failed to spur inflation. Gold will slip to $1,200 by the end of September, averaging $1,000 next year and $840 in 2015, ABN Amro Group NV said yesterday.
“The demand from the physical side is not enough to be able to support prices,” said Nicholas Thompson, executive director at Morgan Stanley Wealth Management. “A stronger dollar coupled with the strength in the equity market and higher real interest rates will keep a cap on gold prices. There is no real catalyst for prices to rise.”
Hedge funds and other large speculators cut bets on higher prices by 72% since October, holding a net-long 55,535 contracts on July 16, U.S. Commodity Futures Trading Commission data show. Bullish wagers reached a six-year low of 31,197 contracts on June 25. Investors sold 662 tons from ETPs this year, wiping $57.5 billion from the value of the funds, data compiled by Bloomberg show. Holdings reached 1,969.88 tons on July 25, the lowest in more than three years.
Billionaire John Paulson owns the largest stake in the SPDR Gold Trust, the biggest bullion ETP. His PFR Gold Fund slid 23% in June, extending this year’s loss to 65%. The slump is also hurting miners. Newcrest Mining Ltd., Australia’s top gold producer, said in June it will write down the value of its assets by as much as A$6 billion ($5.5 billion).
Gold dropped below the level that some producers need to break even this year, leading some banks, including UniCredit SpA, to anticipate contracting supply in the next several years that may help halt the retreat. Credit Suisse Group AG forecasts prices will average $1,180 next year and $1,200 in 2015, and predicts a long-term price of $1,300.
The slump of as much as 39% from the 2011 all-time high is less than the 65% plunge in the 2 1/2 years following the then-record price of $850 set in January 1980. Former U.S. President Richard Nixon severed the dollar peg to gold in 1971 and the government lifted curbs on citizens owning gold at the end of 1974.
Six of 11 people surveyed expect raw sugar to fall next week and five were bullish. The commodity slid 16% to 16.42 cents a pound on ICE Futures U.S. in New York this year.
Corn analysts were the most bearish since August 2009 and soybean traders the most negative since November that year. Cool, wet weather may boost prospects for crops in the U.S. Midwest, said Mark Schultz, the chief market analyst at North Star Commodity Investment Co. in Minneapolis.
Fifteen of 23 surveyed anticipate lower corn prices and three said the grain will rise, while 15 of 23 said soybeans will drop and five expect higher prices. Twelve traders predicted declines in wheat and four were bullish. Corn fell 32% to $4.7725 a bushel this year in Chicago. The December contract, which reflects supply after the U.S. harvest, declined 20% this year. Soybeans lost 13% to $12.2475 a bushel, as wheat slipped 16% to $6.5025 a bushel.
Ten traders and analysts surveyed expect copper to retreat next week, seven were bullish and three were neutral. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, fell 13% to $6,863 a ton this year.
The LME index of six industrial metals slid to a three-year low on June 24 on concern economic growth will slow in China, the biggest user of the materials. China’s expansion will fall to 7.5% in 2013 and 2014, from 7.8% last year, according to as many as 65 economist estimates compiled by Bloomberg. Industrial metals could plunge 40% with an “extreme” hard landing in China, Societe Generale SA estimates. Copper is “particularly exposed” because it’s trading above production costs, it said this week.
“The copper market still looks sluggish,” said Bill O’Neill, a partner at Logic Advisors in Upper Saddle River, New Jersey. “When one fully examines the supply-demand equation it is hard to be overly bullish. China remains a question mark.”