Gold Bulls Strongest Since August as Funds Retreat: Commodities

Gold traders are the most bullish in four months as U.S. lawmakers near a deadline for budget talks. 15 of 19 analysts surveyed expect prices to rise next week. Bullion is headed for a 12th consecutive annual gain, the longest run in at least nine decades.

By Nicholas Larkin
Dec 28, 2012

Gold traders are the most bullish in four months as U.S. lawmakers near a deadline for budget talks, at a time when hedge funds are cutting bets on higher prices.

Fifteen of 19 analysts surveyed by Bloomberg expect prices to rise next week and one was bearish. A further three were neutral, making the proportion of bulls the highest since Aug. 24. Investors bought 60 percent more this year through gold- backed exchange-traded products compared with 2011, boosting holdings to a record on Dec. 20 and which are now valued at $140.5 billion, data compiled by Bloomberg show.

Bullion is headed for a 12th consecutive annual gain, the longest run in at least nine decades, as central banks from Europe to China pledge more steps to spur economic growth. Hedge funds that were the most bullish in 13 months in October have since pared wagers by 43 percent as lawmakers failed to agree on a deal to avert more than $600 billion of automatic tax increases and spending cuts scheduled to start next month.

“The problems we’ve seen over the last year haven’t disappeared,” said Thorsten Proettel, a commodities analyst at Landesbank Baden Wuerttemberg in Stuttgart, Germany. “There is still lots of potential for trouble in the world and that is a good reason for people to stay in gold or buy more.”

The metal advanced 6.2 percent to $1,660.45 an ounce in London this year, even after heading for a third consecutive monthly drop. The Standard & Poor’s GSCI gauge of 24 commodities added 0.2 percent and the MSCI All-Country World Index of equities climbed 13 percent. Treasuries returned 2.3 percent, a Bank of America Corp. index shows.

Debt Purchases

The Federal Reserve said Dec. 12 it would buy $45 billion of Treasury securities a month from January, adding to $40 billion a month of existing mortgage-debt purchases. Gold rose 70 percent as the Fed bought $2.3 trillion of debt in two rounds of monetary easing from December 2008 through June 2011. The European Central Bank, Bank of Japan and China have all pledged to do more to bolster their economies.

Investors buying bullion as a hedge against inflation and a weaker dollar generally earn returns only through price gains. The U.S. Dollar Index, a measure against six currencies, is headed for the first annual drop in three years. As Europe still contends with a three-year debt crisis, U.S. Treasury Secretary Timothy F. Geithner said there’s “significant uncertainty” around tax and spending policies, according to a letter to congressional leaders Dec. 26.

Gold Holdings

ETP holdings gained 274.9 metric tons this year and reached a record 2,632.5 tons on Dec. 20, equal to almost a year of mine production, data compiled by Bloomberg and Barclays Plc show. Nations from Brazil to Iraq to Russia are buying metal to add to reserves. Options traders are also bullish, with the 13 most widely held contracts conferring the right to buy at prices from $1,750 to $2,700 from January to November, Comex data show.

Speculators are becoming less positive, reducing their net- long position to 112,421 futures and options in the week to Dec. 18, the least since August, U.S. Commodity Futures Trading Commission data show. Hedge funds’ bets on a rally this year were on average 28 percent lower than in 2011.

There are signs that physical demand is slowing, with U.S. Mint sales of American Eagle gold coins at 69,500 ounces so far this month, 49 percent less than the November total, data on its website show. The mint’s sales are down 25 percent this year.

Record Average

While prices averaged a record $1,669 so far this year, they’re yet to beat the all-time high of $1,921.15 set in September 2011. Gold will probably peak next year because of improving U.S. growth, even as the Fed expands stimulus, Goldman Sachs Group Inc. said in a Dec. 5 report. It still expects an average of $1,750 in 2014.

The drop of as much as 8.9 percent since Oct. 5 pushed gold below its 200-day moving average last week for the first time since August. Prices slid almost 10 percent in seven weeks after falling below the measure in March.

The 14-day relative-strength index (MXWD) was at 31.8 yesterday, near the level of 30 that indicates to some analysts who study such charts that a gain in prices may be imminent.

In other commodities, eight of 18 traders and analysts surveyed expect copper to rise next week, six were bearish and four were neutral. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, climbed 4.2 percent to $7,919 a ton this year.

Sugar Survey

Three of eight people surveyed expect raw sugar to fall next week and four predict little change. The commodity slid 16 percent to 19.48 cents a pound on ICE Futures U.S. in New York this year.

Fourteen of 28 people surveyed anticipate a gain in corn prices next week and 10 said the grain will drop, while 13 of 30 said soybeans will decline and 12 expect higher prices. Twelve of 26 traders predicted rising wheat prices and 10 were bearish. Corn rose 7.3 percent to $6.9375 a bushel this year as soybeans advanced 18 percent to $14.2075 a bushel in Chicago. Wheat gained 19 percent to $7.7825 a bushel.

The S&P GSCI gauge is heading for its worst performance since 2008. Money managers cut bullish bets across 18 U.S. commodities to the lowest level in almost six months, according to CFTC data. While the International Monetary Fund cut its 2013 growth forecast twice since July, it expects a 3.6 percent global expansion next year, from 3.3 percent this year.

“The fiscal cliff is certainly having some impact on price action on a day-to-day basis, although markets at the moment are pretty quiet,” said Colin O’Shea, the head of commodities at Hermes Investment Management Ltd. in London, which manages about $2.3 billion of raw-material assets. “A resolution of the fiscal cliff in some form could provide a short-term impact on the market. We may see increased inflation going forward which will bode well for commodities.”

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