Gold traders are split on whether bullion will plunge into its first bear market since 2008 as economies improve or rally as central banks buy more debt.
Twelve analysts surveyed by Bloomberg expect prices to rise next week and the same number were bearish. A further three were neutral. Gold slumped to a 10-month low of $1,540.29 an ounce yesterday and investors sold $9.7 billion from exchange-traded products since their holdings reached a record Dec. 20. Hedge funds cut bets on higher prices by 70 percent since October.
Gold’s 12-year bull rally is probably ending as the U.S. leads a global economic recovery, according to banks from Credit Suisse Group AG to Goldman Sachs Group Inc. Commerzbank AG says it’s too early to call an end to the rally and Standard Bank Plc forecasts prices will climb this year as central-bank stimulus and record-low interest rates spur demand for a protection of wealth. The Bank of Japan said yesterday it will double monthly bond buying to bolster the economy.
“The main driver behind gold’s weakness this year has been the focus on global growth and that’s meant rotation out of defensive assets like gold,” said Joni Teves, an analyst at UBS AG in London. “There’s this weak sentiment and it’s been feeding on itself. Central banks continue to pursue exceptionally loose monetary policies and create a still supportive environment for gold.”
The metal fell 6.4 percent to $1,567.55 in London this year. A close at $1,520.18 would be a 20 percent drop from the peak reached in September 2011, the common definition of a bear market. The Standard & Poor’s GSCI gauge of 24 commodities dropped 2.8 percent this year, and the MSCI All-Country World Index (MXWD) of equities gained 4.3 percent. Treasuries are little changed, a Bank of America Corp. index shows.
Gold rose as much as 1.3 percent today after a Labor Department report showed U.S. employers hired fewer workers than forecast in March and a slump in the size of the labor force pushed the jobless rate down to a four-year low of 7.6 percent.
Bullion retreated as Federal Reserve policy makers debated the pace of $85 billion of monthly asset purchases and as U.S. equities reached a record. U.S. economic growth will accelerate from the third quarter though mid-2014, according to the median of as many as 74 economist estimates compiled by Bloomberg. The International Monetary Fund is predicting global growth of 3.5 percent in 2013, from 3.2 percent in 2012.
The metal is in “bubble territory” and will fall to $1,375 by the end of the year as a U.S. recovery leads to rising interest rates, Societe Generale SA said in an April 2 report. Credit Suisse cut its 2013 forecast by 9.2 percent to $1,580 two days ago and Goldman Sachs predicts prices will be at $1,600 in six months. Gold averaged a record $1,669 last year.
Hedge funds held a net-long position, or wager on price gains, of 60,126 futures and options by March 26, U.S. Commodity Futures Trading data show. The 39,631 contracts held three weeks earlier were the least since July 2007. The $8.5 billion taken out of commodity ETPs in the first quarter was led by investors selling $9.2 billion from gold products, BlackRock Inc. said yesterday. Gold holdings slid 7.4 percent this year to 2,437.4 metric tons, data compiled by Bloomberg show.
Billionaire investor George Soros, who called bullion the “ultimate asset bubble” in 2010, cut his stake in the SPDR Gold Trust by 55 percent in the fourth quarter, filings showed in February. John Paulson, the largest investor in the biggest bullion ETP, kept his holding now valued at about $3.3 billion unchanged, his filing showed.
Gold will climb to an average of $1,800 in the fourth quarter on demand for an alternative currency and protection from Europe’s debt crisis, Commerzbank said in a March 21 report. Low real interest rates and global liquidity will remain dominant drivers, Standard Bank said in a report last month, forecasting prices as high as $1,780 in the third quarter.
The Fed said March 20 it would keep buying bonds so long as unemployment remains above 6.5 percent and the outlook for inflation is less than 2.5 percent. The BOJ will purchase 7.5 trillion yen ($78.6 billion) of bonds a month and double the monetary base in two years, it said yesterday. The European Central Bank kept interest rates at a record low yesterday.
Bullion reached a three-week high of $1,617.07 on March 21 as delays to Cyprus’s 10 billion-euro ($13 billion) bailout added to concern that Europe’s debt crisis may worsen. The 5.1 percent drop for gold priced in euros this year is less than the retreat for dollar-denominated metal and compares with a 2.6 percent gain for bullion priced in yen.
Falling prices may boost demand. UBS’s physical sales to India, last year’s biggest consumer, on April 3 were among the best in months, the bank said yesterday. While the U.S. Mint’s sales of American Eagle gold coins slipped the past two months, the 292,500 ounces sold in the first quarter was 39 percent more than a year earlier, data on its website show.
Demand from central banks may also support prices, according to Commerzbank. Nations added 534.6 tons to gold reserves last year, the most since 1964, the London-based World Gold Council estimates. They will buy 300 tons this year and the same amount in 2014, Barclays Plc predicts.
The plunge has pushed gold’s 14-day relative strength index to 28.4, below the level of 30 that indicates to some analysts who study technical charts that a rebound may be imminent. It fell into a bear market in June 2006 and August 2008, before as much as doubling to a record $1,921.15 in September 2011.
Gold’s drop this year compares with a 11 percent slide for silver, which entered a bear market this week. Soybeans, wheat and corn, which surged last year as drought in the U.S. parched fields, also fell into bear markets since November.
Fourteen of 29 surveyed anticipate rising corn prices next week and 11 said the grain will drop, while 17 said soybeans will fall and nine expect higher prices. Eighteen traders predicted rising wheat and eight were bearish. Corn slid 9.6 percent to $6.3175 a bushel this year in Chicago as soybeans lost 3.5 percent to $13.605 a bushel. Wheat is down 11 percent at $6.91 a bushel.
Four of 10 people surveyed expect raw sugar to gain next week and one predicted a drop. The commodity slid 9.2 percent to 17.72 cents a pound on ICE Futures U.S. in New York this year.
Six traders and analysts surveyed expect copper to fall next week, five were bullish and three were neutral. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, slipped 6.4 percent to $7,426.50 a ton since the start of January.
While about $3.4 trillion was added to the value of global equities since mid-September, the S&P GSCI gauge of raw materials dropped about 9.1 percent and is little changed from the end of 2010. Global economic expansion will accelerate to 4.1 percent next year, the IMF estimates.
“Investors are reshuffling commodity investments into equities,” said Daniel Briesemann, a commodities analyst at Commerzbank in Frankfurt. “We find it somewhat hard to understand the current underperformance of commodities given that the market environment is characterized by at least some economic recovery. We think that the drop is exaggerated.”
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