Gold Futures Rebound as BlackRock Sees Plunge as ‘Panic Event’

Gold rebounded from the biggest drop in 33 years as BlackRock Inc. said sales didn’t reflect fundamentals and an Asian central banker said policy makers may take the opportunity to buy. Silver also advanced.

The two-day, 13 percent plunge, the biggest since January 1980, was a “panic event” and “out of perspective” because inflation may accelerate, according to BlackRock’s Catherine Raw. The price slump gives central banks an opportunity to buy, Central Bank of Sri Lanka Governor Ajith Nivard Cabraal said in an interview on Bloomberg Television. The Bank of Korea said bullion’s drop isn’t a big concern because holdings are part of a long-term strategy.

Bullion gained sixfold in the 12-year rally through last year. It’s down in 2013 as the U.S. recovery gained momentum and some Federal Reserve policy makers signaled that stimulus may be scaled back, curbing demand for gold as a haven. U.S. equities reached a record this month. Societe Generale SA said the slump is overdone as quantitative easing will continue.

“A correction of that magnitude begets a fairly robust bounce back,” Bart Melek, the head of commodity strategy at TD Securities in Toronto, said in a telephone interview. “The central-bank buying is positive and is definitely providing support.”

Gold futures for June delivery gained 1.9 percent to close at $1,387.40 an ounce at 1:50 p.m. on the Comex in New York, the biggest gain since September 13. Prices earlier touched $1,321.50, the lowest since Jan. 28, 2011. Melek said prices will reach $1,500 this year.

BlackRock View

“The outlook for gold for us is really positive in the long term,” Raw, a fund manager in London at BlackRock, which oversees about $3.8 trillion globally, said in an interview today on Bloomberg Television with Francine Lacqua. “The probability of inflation over the next five years is higher, not lower, than it was last year. Other things, such as cash losing money, the Cyprus event, savings being targeted, means people are looking for alternatives.”

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BlackRock is the top holder in the iShares Gold Trust (IAU) and the fifth-biggest in the SPDR Gold Trust (GLD), the largest exchange- traded fund backed by the metal. Holdings in the SPDR fund fell to 1,154.34 metric tons yesterday, the lowest since April 28, 2010.

Paulson, Soros

Hedge-fund manager John Paulson is sticking with his thesis that gold is the best hedge against inflation and currency debasement as countries pump money into their economies, according to his New York-based firm that manages about $18 billion. The metal’s plunge wiped out almost $1 billion of his personal wealth in the previous two trading sessions. Gold’s long-term trend is “intact,” according to John Reade, a partner and gold strategist at Paulson.

Billionaire investor George Soros, who called bullion the “ultimate asset bubble” in 2010, cut his stake in the SPDR gold fund by 55 percent in the fourth quarter, while Paulson kept his holding. Warren Buffett, the third-richest person in the Bloomberg Billionaires Index, said last year in his annual letter to shareholders that investors should avoid gold as its uses are limited and it doesn’t have the potential of farmland or companies to produce new wealth.

Goldman Sachs Group Inc. said April 10 that the turn in the gold cycle was quickening and that investors should sell the metal. The selloff that began last week was sparked by mounting concern that Cyprus would be forced to sell gold from its reserves, “potentially reflecting a larger monetization of gold reserves across other European central banks,” the bank said in a report today.

Haven Status

“Gold is no longer a safe-haven asset,” Brian Jacobsen, the chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin, said on Bloomberg Television’s “First Up” with Susan Li. “We could actually maybe see a long-term trend of gold trending towards $1,000 in order for it to better converge with other commodity prices.”

Trading today was more than double the average in the past 100 days for this time of day, according to data compiled by Bloomberg. Futures trading yesterday rose to record 751,058 contracts, topping the previous record of 486,315 on Nov. 28, Chicago-based CME Group Inc., the Comex owner, said today in a statement. Options trading also touched an all-time high, CME said.

CME said in a statement yesterday that it will increase margin requirements on gold trading, raising the minimum cash deposit for futures by 19 percent to $7,040 per 100-ounce contract at today’s close.

“People may be starting to get a little nervous about whether gold is continuing its run over the last decade or so, where it’s always increased in price on an annual basis,” said Alexandra Knight, a Melbourne-based economist at National Australia Bank Ltd. “They may be getting to the stage where they realize it’s not an ever-increasing asset.”

Silver futures for May delivery jumped 1.1 percent to $23.628 ounce on the Comex. Earlier, prices touched $22, the lowest since Oct. 5, 2010. Yesterday, the precious metal retreated 11 percent, the biggest drop since Sept. 23, 2011.

To contact the reporters on this story: Debarati Roy in New York at droy5@bloomberg.net; Joe Richter in New York at jrichter1@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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