Gold traders most bullish in three weeks after Fed

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.

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