Gold Bulls Weakest in Two Months as Economy Gains: Commodities

Gold traders are the least bullish in two months after prices erased more than half of this year’s gain on speculation that a strengthening U.S. economy will dissuade the Federal Reserve from buying more debt.

Thirteen of 26 analysts surveyed by Bloomberg expect prices to gain next week and four were neutral, the lowest proportion since Jan. 20. Hedge funds cut bets on a rally by the most since August 2008 in the week ended March 6, Commodity Futures Trading Commission data show. Prices fell to an eight-week low March 14, 15 percent below September’s record, and are now below the 200- day moving average, a sign of more declines to some investors.

Gold slid and the dollar gained after Fed policy makers raised their assessment of the economy March 13. The Fed is unlikely to start new quantitative easing and may raise interest rates as early as mid-2013, according to UBS AG. Bullion doubled since debt buying began in December 2008 and rates fell to near zero. The combined market capitalization of global stocks jumped $5.7 trillion this year on mounting confidence about growth, data compiled by Bloomberg show.

“Everything’s beginning to look as if it’s turning the corner, we’ve passed the point of maximum despair,” said Nick Moore, the head of commodity research at Royal Bank of Scotland Group Plc in London. “A number of things which would have kept people with an eye on the upside for gold have now been neutralized. Gold can now settle back.”

Standard & Poor’s

Gold had risen as much as 14 percent to $1,792.70 an ounce by Feb. 28 on the Comex in New York, before tumbling 7.6 percent to $1,656 by today. This year’s gain of 5.7 percent compares with a 9.6 percent jump in the Standard & Poor’s GSCI gauge of 24 commodities and a 12 percent increase in the MSCI All-Country World Index (MXWD) of equities. Treasuries lost 1.7 percent, a Bank of America Corp. index (MXWD) shows.

Open interest, or contracts outstanding, in U.S. futures declined to 437,593 on March 14, from 523,284 on Sept. 6, when prices reached a record $1,923.70. Hedge funds and other money managers had a net-long position of 145,997 futures and options by March 6, the fewest since the end of January, CFTC (.MMGCNET) data show.

That contrasts with investors in gold-backed exchange- traded products, whose combined holdings reached a record 2,410.2 metric tons on March 13 now valued at $128.3 billion, data compiled by Bloomberg show. Prices are rising for a 12th consecutive year and will reach $1,897 by Dec. 31, according to the average of 14 respondents in a survey at the Bloomberg Link Precious Metals Conference in New York on March 13.

Central Banks

The decline in prices may spur central banks to add more to reserves, RBS’s Moore said. They added 439.7 tons last year, the most in almost five decades, and may buy a similar amount in 2012, according to the London-based World Gold Council.

“After the dramatic drop this week and all month gold is due for a bounce,” said Adrian Day, the president of Adrian Day Asset Management in Annapolis, Maryland. “Given the massive monetary easing by central banks around the world this is a good environment for gold.”

Bullion climbed about 7 percent in the month through Feb. 28 after Fed Chairman Ben S. Bernanke said he’s considering additional bond purchases. The central bank bought $2.3 trillion of debt in two rounds of quantitative easing that ended in June 2011, during which gold appreciated about 70 percent.

Job growth in the U.S. over the past six months was the strongest since 2006, with March 9 data showing payrolls jumped by 227,000 in February, more than economists had anticipated. The 1.1 percent advance in February retail sales was the biggest in five months and the Bloomberg Consumer Comfort Index reached a four-year high in the week ended March 11.

Fund Futures

Gold generally earns holders returns only through price gains. Federal fund futures on the Chicago Board of Trade show a 12.7 percent chance the Fed will raise borrowing costs by the end of this year from the current range of between zero and 0.25 percent. The odds for an increase were 7.5 percent a month ago.

While physical demand from India, the second-biggest buyer in the fourth quarter, on March 14 was the most since January 2011, there was “limited” demand from other regions, Edel Tully, an analyst at UBS in London, wrote in a report yesterday.

The metal dropped below its 200-day moving average on March 6 for the first time since mid-January and is trading about $23 below that measure, a sign for some investors who study charts of trading patterns and prices to predict trends that a rout has further to go. The metal’s 14-day relative-strength index is at 38.9. A level of 30 indicates to some analysts who study such charts that a rebound may be due.

Copper Bears

In other commodities, nine of 22 traders and analysts surveyed by Bloomberg expect copper to drop next week and six were neutral. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, rose 12 percent to $8,528 a ton this year after declining 21 percent last year.

Eight of 16 people surveyed expect raw sugar to fall next week and two predicted little change. The commodity gained 9.1 percent this year to 25.42 cents a pound on ICE Futures U.S. in New York.

Sixteen of 27 people surveyed anticipate higher corn prices next week, while 18 of 28 said soybeans will advance. Corn rose 3.4 percent to $6.6875 a bushel this year as soybeans climbed 14 percent to $13.72 a bushel.

“Positive sentiment on the back of better-than-expected macroeconomics data is supporting the outlook” for commodities, said Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland. “However, it needs to be proven if it’s investment driven or real end-user demand.”

Gold survey results: Bullish: 13 Bearish: 9 Hold: 4
Copper survey results: Bullish: 7 Bearish: 9 Hold: 6
Corn survey results: Bullish: 16 Bearish: 9 Hold: 2
Soybean survey results: Bullish: 18 Bearish: 6 Hold: 4
Raw sugar survey results: Bullish: 6 Bearish: 8 Hold: 2
White sugar survey results: Bullish: 7 Bearish: 5 Hold: 4
White sugar premium results: Widen: 8 Narrow: 5 Neutral: 3

To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net

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