Hedge funds add to gold positions as Goldman sees decline

Goldman View

Prices will decline as the U.S. economy improves, prompting a “less accommodative monetary policy stance,” Goldman analysts led by Jeffrey Currie, the bank’s head of commodities research in New York, wrote in a July 22 report. The metal will drop to $1,050 by the end of next year, the bank forecasts. Confidence among American consumers reached a six-year high in July, a private report showed July 26.

Traders are the least bullish on bullion in four weeks as jewelry purchases slowed during this month’s rally. Thirteen analysts surveyed by Bloomberg expect prices to rise this week, 10 were bearish and seven neutral, the lowest proportion of bulls since June 28.

“Gold has made a terrific recovery, but there’s going to be resistance from people who got caught before, so there’s not too much to the upside for now,” said Donald Selkin, who helps manage about $3 billion of assets as the New York-based chief market strategist at National Securities Corp. “People are going to wait and see what the Fed is going to do.”

Miner Writedowns

Prices dropped in eight of the past nine months as the dollar rallied and equity markets gained, curbing demand for the metal as an alternative asset. The declines forced mining companies, including Barrick Gold Corp. and Newmont Mining Corp., to announce at least $15 billion of writedowns in the past two months.

Billionaire John Paulson’s PFR Gold Fund tumbled 23% in June, extending this year’s loss to 65%. He owns the largest stake in the SPDR Gold Trust, the biggest exchange- traded product backed by bullion. Holdings in global ETPs retreated 25% this year to the lowest since May 2010, erasing $57.6 billion from the value of the assets.

Paulson & Co. has reiterated its commitment to investing in bullion and stocks of gold producers to hedge against currency debasement as central banks pump money into economies. Accelerating inflation is a risk and gold is an important part of any portfolio, Paulson said July 17 at the CNBC Institutional Investor Delivering Alpha Conference in New York.

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