Gold traders are betting that the Fed's pledge to keep interest rates low until the end of 2014 will extend gold's best start to a year in more than 30 years. Most experts are predicting more gains next week and continued rising as the central bank lays the groundwork for a possible third round of quantitative easing.
By Nicholas Larkin
Jan 27, 2012 8:11 AM MT
Gold traders are bullish for a fourth consecutive week, betting that the Federal Reserve’s pledge to keep interest rates low until late 2014 will extend the metal’s best start to a year in more than three decades.
Nine of 15 surveyed by Bloomberg expect prices to gain next week. The value of gold held in exchange-traded products jumped $3.9 billion on Jan. 25, the most since October, as the central bank laid the groundwork for a possible third round of asset purchases, data compiled by Bloomberg show. Lower interest rates increase the appeal of bullion because it generally earns investors returns only through price gains.
Bullion rose 2.7 percent, the most in three months, after Chairman Ben S. Bernanke said he’s considering additional bond purchases to boost growth. The Fed bought $2.3 trillion of debt in two rounds of quantitative easing from December 2008 to June 2011, during which gold appreciated about 70 percent. Investors are now buying American Eagle gold coins from the U.S. Mint at the fastest pace since July 2010, data on its website show.
“The trigger offered by the Fed definitely helped,” said Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt. “The opportunity costs of holding gold will remain low in the future and this should boost the attractiveness of gold. We don’t see an end to the long-term uptrend in gold prices.”
Gold rose 9.9 percent to $1,720.65 an ounce this month by yesterday, the best start to a year since 1980 and rebounding from the first quarterly decline in three years. Bullion is beating the 3.1 percent advance in the Standard & Poor’s GSCI Total Return Index of 24 commodities and the 6 percent gain in the MSCI All-Country World Index of equities. Treasuries lost 0.2 percent, a Bank of America Corp. index shows.
The metal reached a record $1,921.15 in September and slid to within 1 percentage point of a bear market on Dec. 29, taking it below its 200-day moving average for the first time since January 2009. Gold closed back above the 200-day moving average on Jan. 11 and the 100-day moving average on Jan. 25. That’s a sign for some investors who study charts of trading patterns and prices to predict trends that the rally has further to go.
The Fed pledged that it is “prepared to provide further monetary accommodation” if unemployment remains higher than it would like while inflation falls below a newly-established target. The International Monetary Fund said a day earlier that the world economy will expand 3.3 percent this year, down from a 4 percent estimate in September. The World Bank cut its growth forecast last week by the most in three years.
A third, fourth and fifth round of easing “lie ahead,” Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., wrote in a Jan. 25 Twitter post. The European Central Bank kept interest rates at a record low this month as the region contends with a spreading debt crisis.
The U.S. Mint sold 114,500 ounces of American Eagle gold coins so far this month, its website shows. Full-month sales would reach 143,125 ounces at that pace, the most since July 2010. The 2,359.638 metric tons of gold held in ETPs backed by the metal is within 1.5 percent of the all-time high set last month and exceeds the reserves of all but four central banks.
While traders are getting more bullish on gold, some investors may return to stocks after about $2.9 trillion was added to the value of global equities this year and the MSCI All-Country World Index reached its highest since August.
“There are now alternatives if equities begin to pick up,” said Jessica Cross, chief executive officer of VM Group, a London-based commodities research company. “It’s difficult to get the same amount of physical demand again this year, which will probably put a bit of a dampener on prices.”
Investors added about 171.5 tons of gold to their ETP holdings last year, valued at $9.5 billion at today’s price. Flows may reach 250 tons this year, Barclays Capital estimates.
Hedge funds and other money managers also are getting more bullish. Speculators (.MMGCNET) raised their net-long position to 116,978 futures and options in the week ended Jan. 17, the first gain in six weeks, Commodity Futures Trading Commission data show.
Eight of 16 traders and analysts surveyed by Bloomberg expect copper to fall next week and one was neutral. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, rose 13 percent to $8,564.75 a ton this month after declining 21 percent last year. It reached a four- month high yesterday.
Four people surveyed expect raw-sugar prices to rise next week and the same number predicted a drop. The commodity slid 27 percent last year and is up 4.2 percent this month at 24.27 cents a pound on ICE Futures U.S. in New York.
Seventeen of 26 people surveyed anticipate higher corn prices next week, while fourteen of 27 said soybeans will advance. Corn dropped 1.1 percent this month to $6.3925 a bushel and soybeans gained 1.2 percent to $12.2275 a bushel.
“It looks as if the Fed is going to support the economy as long as it takes,” said Carole Ferguson, an analyst at Fairfax IS in London. “This is going to support commodities in the short term. But really we have to wait to see how things progress through the year on a global basis and particularly what happens in China.”
Gold survey results: Bullish: 9 Bearish: 6 Hold: 0
Copper survey results: Bullish: 7 Bearish: 8 Hold: 1
Corn survey results: Bullish: 17 Bearish: 8 Hold: 1
Soybean survey results: Bullish: 14 Bearish: 10 Hold: 3
Raw sugar survey results: Bullish: 4 Bearish: 4 Hold: 0
White sugar survey results: Bullish: 4 Bearish: 3 Hold: 1
White sugar premium results: Widen: 3 Narrow: 2 Neutral: 3
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