Gold bulls retreat as higher prices deter jewelers

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.

Federal Reserve

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.

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