Gold bears retreat as prices reach two-month high

JPMorgan Outlook

Demand in India and possible mine strikes in South Africa may boost prices in the next four to five weeks before an industry conference in Denver, JPMorgan Chase & Co. said in a report Aug. 15. The metal may rally to $1,420 by the end of the year as the decline in prices attracts investors, central banks and fabricators, Jeffrey Christian, a managing partner at CPM Group, said in an interview in Jaipur, India, last week.

Declining equities and a weaker dollar have helped support gold, Suki Cooper, a New York-based analyst at Barclays Plc, said in a report Aug. 16. The S&P 500 Index fell 2.1% last week, the most since June. Bullion tumbled 18% this year as the S&P 500 advanced to a record Aug. 2.

Strengthening physical demand wasn’t enough to compensate for sales from exchange-traded products last quarter, driving overall demand down 12% to a four-year low, the World Gold Council said. Paulson & Co., the largest investor in the SPDR Gold Trust, the biggest bullion ETP, cut its stake by 53% in the second quarter to 10.2 million shares, a filing to the U.S. Securities and Exchange Commission showed Aug. 14. The stake was valued at $1.35 billion on Aug. 16, compared with $1.21 billion at the end of the quarter.

Hedge Funds

Soros Fund Management LLC sold 530,900 SPDR shares last quarter, valued at $63.2 million as of June 28, an SEC filing showed. Third Point LLC, run by billionaire hedge-fund manager Daniel Loeb, sold all of its 130,000 SPDR shares, valued at $15.5 million at the end of the quarter. SPDR gold holdings climbed 0.5% last week, the first gain since December.

Gold tumbled into a bear market in April, reaching a 34- month low on June 28, amid speculation the U.S. economy gained enough traction for the Federal Reserve to begin curbing stimulus. Prices surged 70% from December 2008 to June 2011 as the central bank bought more than $2 trillion of debt, increasing demand for a hedge against inflation.

Stimulus Cuts

A Bloomberg survey this month showed 65% of economists expect Fed Chairman Ben S. Bernanke to reduce the $85 billion of monthly asset purchases in September, probably starting with a cut of $10 billion.

“Gold has until this point been a store of value in times of instability,” said Chad Morganlander, a Florham Park, New Jersey-based fund manager at Stifel Nicolaus & Co. whose company oversees about $130 billion of assets. “If one believes we are hitting a point of self-sustaining recovery in the U.S., investors may want to underweight or eliminate their gold exposure.”

Money managers pulled $36.28 million from precious-metal funds in the week ended Aug. 14, according to Cambridge, Massachusetts-based EPFR Global, which tracks money flows. Commodity funds had inflows $29.89 million.

Net-long positions in crude slipped 0.7% to 308,786 contracts, CFTC data show. West Texas Intermediate gained for six straight sessions through Aug. 16, the longest rally since April. Prices gained 1.4% last week amid concern that clashes in Egypt will disrupt Middle East supply.

Money managers held a net-long position in copper of 7,041 contracts, after betting on lower prices for 24 consecutive weeks, the longest bearish stretch since July 2009, the CFTC data show. Factory output in China, the biggest metals consumer, jumped more than estimated last month, government data showed Aug. 9. Futures rose 1.8% last week.

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