Gold analysts are the most bullish in three weeks after the Federal Reserve’s surprise decision not to taper stimulus increased demand for bullion as a hedge against accelerating inflation and currency debasement.
Sixteen analysts surveyed by Bloomberg expect prices to rise next week, five were bearish and five neutral. Gold jumped 4.1% (COMEX:GCZ13) on Sept. 18, the most in 15 months, after the U.S. central bank said it wants more evidence of an economic recovery before slowing its $85 billion-a-month of bond buying.
Gold is set for the first annual drop in 13 years as some investors lose faith in the metal as a store of value amid signs economies are strengthening. Fed Chairman Ben S. Bernanke surprised analysts who predicted a $5 billion cut, saying he was concerned that market interest rates, driven higher by his own suggestion he would scale back stimulus, would curb growth. As gold surged, the dollar slumped to a seven-month low.
“The Fed has realized that any attempt to reduce or eliminate quantitative easing will lead to a surge in interest rates,” said Jeff Sica, who helps oversee more than $1 billion as the president of Sica Wealth Management in Morristown, New Jersey. “There will be ongoing currency devaluation both in the U.S. and around the world. I anticipate significant fundamental strength in the price of gold in the near term.”
Gold Rebounds
The metal fell 19% to $1,353.45 an ounce in London this year after slipping into a bear market in April. Prices rebounded as much as 6.5% since reaching a five-week low on Sept. 18. The Standard & Poor’s GSCI gauge of 24 commodities fell 0.7% this year and the MSCI All-Country World Index of equities gained 15%. The Bloomberg U.S. Treasury Bond Index lost 3%.
Bullion rose 70% from December 2008 to June 2011 as the U.S. central bank pumped more than $2 trillion into the financial system by buying debt, increasing concern about currency debasement. Bernanke said there is no fixed schedule for tapering and a statement from the Fed signaled interest rates will stay near zero as long as unemployment remains above 6.5% and inflation forecasts don’t exceed 2.5%.
The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 major currencies, dropped 2.5% in the past two weeks, reaching the lowest since Feb. 19. Gold moved in opposite directions to the dollar in 11 of the previous 12 quarters. Global equities reached the highest in five years yesterday.
Consumer Prices
Expectations for gains in U.S. consumer prices, as measured by the break-even rate for 10-year Treasury Inflation Protected Securities, jumped to a five-week high. Gold slid 29% from its September 2011 record of $1,921.15 partly as stimulus failed to stoke inflation.
The latest Fed decision and a debate among U.S. lawmakers about whether to raise the nation’s $16.7 trillion debt ceiling means gold could gain further in the near term, Goldman Sachs Group Inc. wrote in a Sept. 18 report. The bank restated its prediction that prices will resume a drop into 2014 as U.S. economic growth gains and monetary policy is tightened. It forecasts $1,050 at the end of next year.
This week’s rally is an opportunity to sell, Societe Generale SA said in a report yesterday. The metal will average $1,125 next year, the bank says. Credit Suisse Group AG expects an average of $1,180. U.S. economic expansion will accelerate to 2.65% next year and 3% in 2015, from 1.6% this year, according to as many as 81 economist estimates compiled by Bloomberg.
ETP Holdings
Investors sold 696.8 metric tons through gold-backed exchange-traded products this year, erasing $57.6 billion from the funds’ value and pushing holdings to the lowest in more than three years, data compiled by Bloomberg show. John Paulson, the billionaire hedge fund manager and biggest investor in the SPDR Gold Trust, the largest gold ETP, cut his stake in the product by 53% last quarter, a government filing showed.
Gold advanced as much as 21% from a 34-month low in June through late August as lower prices boosted demand for jewelry, bars and coins. Sales during the main festival season from August to November in India, last year’s biggest buyer, will be less than a year earlier as slowing economic growth and a shortage caused by government curbs on bullion imports hurts demand, said C. Vinod Hayagriv, managing director of C. Krishniah Chetty & Sons Pvt., a Bangalore-based retailer.
Mint Sales
Physical demand is slowing elsewhere, with the U.S. Mint selling 11,500 ounces of American Eagle gold coins in August, the least in six years and down from as much as 209,500 ounces in April. Sales totaled 9,000 ounces so far this month, data on its website show. Sales of coins and bars from Australia’s Perth Mint dropped 46% in August from July.
While hedge funds and other large speculators cut their net-long position by 16% to 84,929 futures and options in the week through Sept. 10, wagers on gains more than doubled since the end of June, U.S. Commodity Futures Trading Commission data show. The position slumped 67% since August 2011.
Eight of 15 people surveyed expect raw sugar to drop next week and six were bullish. The commodity slid 9% to 17.76 cents a pound on ICE Futures U.S. in New York this year.
Twelve of 28 surveyed anticipate higher corn prices and 11 said the grain will fall, while 16 of 29 said soybeans will rise and nine expect lower prices. Eleven predicted gains in wheat and eight were bearish. Corn fell 35% to $4.535 a bushel this year in Chicago. Soybeans dropped 6.5% to $13.1725 a bushel, as wheat slumped 16% to $6.5125 a bushel.
Copper’s Decline
Ten traders and analysts surveyed expect copper to climb next week, eight were bearish and eight neutral. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, dropped 7.8% to $7,313.50 a ton this year.
The S&P gauge of raw materials rebounded 1.4% since reaching a five-week low on Sept. 17. The Fed’s decision to hold stimulus came at a time when economic data from China to Brazil shows signs of improvement and helps countries most dependent on foreign financing such as Brazil and India, according to Denise Simon, an emerging-market fixed income manager in New York at Lazard Asset Management, which oversees $147 billion of assets.
“Continued stimulus in the U.S. means support to U.S. growth, with rippling effects in terms of general demand for goods,” said Bjarne Schieldrop, the chief commodity analyst in Oslo at SEB AB. “The Fed decision is positive for continued capital flows to emerging markets. More capital to emerging markets means better growth prospects and means stronger commodity demand.”
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Gold survey results: Bullish: 16 Bearish: 5 Hold: 5
Copper survey results: Bullish: 10 Bearish: 8 Hold: 8
Corn survey results: Bullish: 12 Bearish: 11 Hold: 5
Soybean survey results: Bullish: 16 Bearish: 9 Hold: 4
Wheat survey results: Bullish: 11 Bearish: 8 Hold: 7
Raw sugar survey results: Bullish: 6 Bearish: 8 Hold: 1
White sugar survey results: Bullish: 5 Bearish: 8 Hold: 2
White sugar premium results: Widen: 6 Narrow: 5 Neutral: 4
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