Hedge funds raised bullish gold wagers to the highest in eight weeks as signs of stronger Chinese demand drove prices to the longest rally since August. Goldman Sachs Group Inc. says the gains will be short-lived.
The net-long position in gold (COMEX:GCG14) climbed 7.6% to 43,277 futures and options in the week ended Jan. 14, U.S. Commodity Futures Trading Commission data show. Long wagers rose 4.7%, outpacing the 2.9% gain in short bets. Net- bullish holdings across 18 U.S.-traded commodities advanced 2.6%, led by cattle, silver and soybeans.
Gold climbed for four straight weeks, rebounding 4.4% this month after a 28% plunge in 2013 that was the biggest since 1981 as some investors lost faith in the metal as a store of value. Lower prices are attracting buyers in Asia, with deliveries by the Shanghai Gold Exchange almost doubling in 2013. The bear market is unlikely to reverse, and bullion will “grind lower” over 2014 as the U.S. economy gains momentum, Goldman analysts said in a report Jan. 12.
“There’s a tremendous divide in the gold market,” said Jeff Sica, who helps oversee more than $1 billion of assets as president of Sica Wealth Management in Morristown, New Jersey. “Demand for jewelry in China is still relatively strong, and I think it will remain strong. The bears ignore physical demand and think that gold is not relevant when there’s no economic crisis.”
Futures in New York rose 0.4% last week to $1,251.90 an ounce, as the Standard & Poor’s GSCI Spot Index of 24 raw materials climbed 0.9%. The MSCI All-Country World index of equities gained 0.1%. The Bloomberg Dollar Spot Index, a gauge against 10 major trading partners, advanced 0.8%. The Bloomberg Treasury Bond Index added 0.2%. Gold for February delivery increased 0.3% to $1,255.40 on the Comex by 9:23 a.m.
The Shanghai Gold Exchange, China’s largest bullion bourse, delivered 2,197 metric tons to customers in 2013, compared with 1,139 tons in 2012, it said Jan. 15. The Asian country topped India as the world’s top buyer last year as demand probably reached a record, the World Gold Council estimates.
The U.S. Mint sold 83,500 ounces of American Eagle gold coins so far in January, heading for the biggest monthly total since April. Holdings in the SPDR Gold Trust, the biggest exchange-traded product backed by the metal, jumped 0.9% on Jan. 17, the biggest gain since November 2011. A day earlier, the assets were at the lowest level since January 2009.
Prices will probably rise to $1,400 by the end of the year as the trend of investor selling in ETFs reverses and demand in Asia gains, Commerzbank AG analysts led by Eugen Weinberg in Frankfurt said in a report Jan. 17.
Goldman expects bullion to fall to $1,050 in the next 12 months as the Federal Reserve reduces monetary stimulus, analysts led by Jeffrey Currie, the bank’s head of commodities research, said in the report last week. Precious metals are Morgan Stanley’s “least preferred” commodities, and physical demand from China and India won’t be enough to support prices, analysts Adam Longson, Bennett Meier and Peter Richardson said in a Jan. 17 report.
The Fed, which said in December it would trim its monthly asset purchases to $75 billion from $85 billion, will probably keep cutting bond buying by $10 billion at each policy meeting, according to a Bloomberg survey of economists on Jan. 10. The central bank next meets Jan. 28-29. Gold rose 70% from December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system. Futures have plunged 35% from a record $1,923.70 in September 2011.