Gold bulls increase positions to highest since January

Coin Demand

Demand for jewelry, coins and bars will reach as much as 1,000 metric tons in India and China in 2013, the World Gold Council estimates. Gold sales by the Austrian mint in Vienna expanded 79% from January to July compared with a year earlier. Russia increased its gold reserves in July to the most since at least 1993, with Kazakhstan and Guatemala also adding to holdings, according to International Monetary Fund data.

Bullion holdings through exchange-traded products climbed 0.1% last week, the third straight advance and the longest run of increases this year. About $54.2 billion was wiped from the value of the assets this year as gold prices tumbled 17%, spurring losses for billionaire John Paulson and forcing Newcrest Mining Ltd. and other mining companies to announce at least $26 billion in writedowns.

Fed Meeting

Federal Reserve officials meeting this month will consider whether to begin curbing $85 billion of monthly bond purchases. Gold rose 70% from December 2008 to June 2011 as the U.S. central bank pumped more than $2 trillion into the financial system by purchasing debt, increasing investor concerns about currency debasement and accelerating inflation.

Fed policy makers were “broadly comfortable” with Chairman Ben S. Bernanke’s plan to start reducing bond buying later this year if the economy improves, according to minutes of their July meeting released Aug. 21. The U.S. economy expanded 2.5% last quarter, up from an initial estimate of 1.7%, the Commerce Department said Aug. 29.

Bullion tumbled a record 23% in the three months ended June 30 amid mounting speculation that the central bank will reduce its asset purchases.

“The increase in gold has been because of some temporary factors,” said Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees about $112 billion of assets. “As I look forward, some of these things start to unwind. With better economic news on the horizon, it means taper terror is back in the gold market.”

Commodity Funds

Money managers withdrew $361 million from gold funds in the week ended Aug. 28, according to Cambridge, Massachusetts-based EPFR Global, which tracks money flows. Commodity funds had outflows of $17 million.

Commodity assets under management rose in July by about $1 billion to $348 billion, the first increase since early 2013, Barclays Plc said in a report Aug. 27. Price gains made up for a decline of $3.1 billion in investments, with precious metals making up the majority of the withdrawals, the bank said.

Net-long positions in crude advanced 4.9% to 317,523 contracts, CFTC data show. West Texas Intermediate reached a two-year high on Aug. 28 amid concern that escalating conflict in the Middle East may disrupt supplies. Prices retreated 2.2% over the next two days as U.K. lawmakers rejected a proposal by Prime Minister David Cameron seeking a military response to Syria.

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