Gold Bulls Extend Streak as Prices Jump on Stimulus

As the Fed introduces new measures to spur the economy, the pressure is now on the U.S. dollar. Could that benefit gold?

Gold traders extended their bullish streak as analysts from Bank of America Corp. to Deutsche Bank AG forecast record prices by next year after central banks pledged more action to bolster economic growth.

Fifteen of 29 analysts surveyed by Bloomberg expect prices to rise next week and seven were bearish. A further seven were neutral, extending the overall bullish outlook for an 18th week. Hedge funds’ bets on a rally are at a six-month high and investors bought the most through gold-backed exchange-traded products this quarter in more than two years.

The Federal Reserve announced a third round of debt-buying Sept. 13 and the Bank of Japan said two days ago it will add 10 trillion yen ($128 billion) to a fund that buys assets. The European Central Bank announced an unlimited bond-purchase program Sept. 6 and China approved a $158 billion subways-to- roads construction plan. Gold rose 70 percent as the Fed bought $2.3 trillion of debt in two rounds of quantitative easing from December 2008 through June 2011.

“Gold is one of the commodities that will benefit most from quantitative easing,” said Kamal Naqvi, the head of commodities sales in Europe, Middle East and Africa for Credit Suisse Group AG in London. “Everyone is talking about gold at $2,000 an ounce and I still think we’ll get to at least that.”

Gold’s Rally

Gold rose 14 percent to $1,776.93 an ounce in London this year, reaching a six-month high today and extending 11 consecutive annual gains. It set a record $1,921.15 in September last year. The Standard & Poor’s GSCI gauge of 24 commodities added 3 percent since the beginning of January and the MSCI All- Country World Index of equities increased 13 percent. Treasuries returned 1.6 percent, a Bank of America index (MXWD) shows.

Some investors buy bullion as a hedge against inflation and a weaker dollar. The Fed said it will buy $40 billion a month of mortgage debt to bolster the labor market and probably hold the federal funds rate near zero until at least the middle of 2015. Inflation expectations measured by the break-even rate for five- year Treasury Inflation Protected Securities surged to the highest since May 2011 on Sept. 17.

Gold will climb to $2,000 by the second quarter and will reach $2,400 by the end of 2014 if the Fed’s latest easing lasts until then, Bank of America said in a Sept. 18 report. Prices will exceed $2,000 in the first half of next year, Deutsche Bank wrote that day. Morgan Stanley expects gold to average $1,816 next year and Standard Chartered predicts a second-quarter average of $1,900. Both would be the highest ever.

ETP Holdings

Investors bought 115.9 metric tons through gold ETPs since the beginning of July, the most since the second quarter of 2010. Holdings reached a record 2,523.7 tons yesterday, data compiled by Bloomberg show. Billionaire John Paulson raised his stake in the SPDR Gold Trust, the biggest gold product, by 26 percent in the second quarter and George Soros more than doubled his holdings, U.S. Securities and Exchange Commission filings showed Aug. 14.

Physical purchases will bolster prices before the Indian wedding season and religious festivals later this year, said James Moore, an analyst at FastMarkets Ltd. in London. Demand has waned this year as local prices surged to a record, with India’s gold imports falling 56 percent in the second quarter, according to the World Gold Council.

Coin Sales

The advance in ETP holdings has yet to be reflected in coin purchases. Sales of American Eagle gold coins by the U.S. Mint totaled 451,500 ounces since the start of January, 46 percent less than a year earlier, data on its website show.

Some technical indicators are signaling bullion may be poised to decline after rallying 13 percent in the past two months. The metal’s 14-day relative-strength index was at 77.6 today, above the level of 70 that indicates to some analysts who study such charts that a drop in prices may be imminent.

Hedge funds and other speculators are anticipating more gains. They more than doubled their net-long position since July 24 to the most since Feb. 28, U.S. Commodity Futures Trading Commission data show.

In other commodities, 12 of 23 traders and analysts surveyed by Bloomberg expect copper to gain next week and eight predicted a drop. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, climbed 9 percent to $8,281.50 a ton this year.

Sugar Survey

Five of six people surveyed said raw sugar will drop next week and one expected a gain. The commodity slid 13 percent to 20.17 cents a pound since the start of January on the ICE Futures U.S. exchange in New York.

Twelve of 28 people surveyed anticipate lower corn prices next week and nine were bullish, while 12 of 29 said soybeans will drop and 11 predicted gains. Corn jumped 16 percent to $7.505 a bushel in Chicago this year and reached a record $8.49 on Aug. 10 as the worst U.S. drought in a half century damaged crops. Soybeans set an all-time high on Sept. 4 and are up 34 percent this year at $16.225 a bushel.

The S&P GSCI gauge of raw materials will end the year at 677, about 1.9 percent higher than now, based on the median of 10 investor and analyst estimates compiled by Bloomberg. China has slowed for six consecutive quarters and the 17-nation euro area is contracting. The International Monetary Fund expects global growth to accelerate to 3.9 percent next year, from 3.5 percent in 2012.

“I still struggle to see how you can have a sustained rally in an environment of weak growth,” said Michael Widmer, an analyst at Bank of America Merrill Lynch in London. “If you get a bottoming out in growth and potentially a pickup through the second half of next year and have quantitative easing on top of that, I think you have a very good environment for a lot of commodities.”

 Gold survey results: Bullish: 15 Bearish: 7 Hold: 7 Copper survey results: Bullish: 12 Bearish: 8 Hold: 3 Corn survey results: Bullish: 9 Bearish: 12 Hold: 7 Soybean survey results: Bullish: 11 Bearish: 12 Hold: 6 Raw sugar survey results: Bullish: 1 Bearish: 5 Hold: 0 White sugar survey results: Bullish: 1 Bearish: 5 Hold: 0 White sugar premium results: Widen: 1 Narrow: 0 Neutral: 5 

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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