Gold bulls raise positions most in month on stimulus

Government Shutdown

Most analysts surveyed by Bloomberg Sept. 18-19 said they now expect the Fed to wait until a December meeting to reduce monthly bond buying. An August survey showed analysts forecast a cut in September. Future purchases will depend on changes in economic data, Fed Chairman Ben S. Bernanke said Sept 18. U.S. monetary stimulus and a budget debate among lawmakers that may lead to a government shutdown means gold prices may rise in the near term, Goldman Sachs Group Inc. said the same day.

The U.S. faced an impasse over raising the debt ceiling in 2011 before Congress approved a plan to head off a default. Gold reached a record $1,923.70 on Sept. 6, 2011. The Fed’s balance sheet swelled to a record $3.73 trillion after three rounds of so-called quantitative easing. Bullish gold bets more than doubled since reaching a six-year low in June, CFTC data show.

Gold will probably resume declines into next year as the U.S. economy improves, banks including Goldman, Citigroup Inc. and Morgan Stanley say. The Fed’s decision on tapering was only “deferred,” and bullion may average $1,270 in the last quarter of 2014, Barclays Plc said Sept. 27.

Consumer Spending

The U.S. economy grew at a 2.5% annualized rate in the second quarter after expanding 1.1% in the first three months of the year, and consumer spending rose in August for the fourth straight month, Commerce Department reports showed last week.

Bullion holdings in exchange-traded products fell 27% this year, erasing $58.9 billion from the value of the assets. Investors amassed a record 2,632.5 metric tons in December. The ETP hoard climbed amid concern that stimulus would spur inflation. U.S. consumer prices grew at a 1.5% annual rate in August, compared with a 10-year average of 2.4%, Labor Department data showed Sept. 17.

“Evidence of an improvement within the global economy as well as financial stability within the credit markets is a negative for the gold investor,” said Chad Morganlander, a Florham Park, New Jersey-based fund manager at Stifel Nicolaus & Co. whose company oversees about $130 billion of assets. “As the economy and the financial system heals itself, gold will continue to underperform other speculative asset classes.”

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