Gold Bears Dominant Again as U.S. Growth Quickens: Commodities

Photographer: Alessia Pierdomenico/Bloomberg

While gold’s record 23 percent slide in the second quarter spurred demand for jewelry and coins, July’s rally slowed those purchases, Standard Bank Group Ltd. said. Close

While gold’s record 23 percent slide in the second quarter spurred demand for jewelry... Read More

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Photographer: Alessia Pierdomenico/Bloomberg

While gold’s record 23 percent slide in the second quarter spurred demand for jewelry and coins, July’s rally slowed those purchases, Standard Bank Group Ltd. said.

Gold traders are bearish for the first time in six weeks as accelerating U.S. economic growth and weaker sales of physical bullion curbed demand for the metal.

Twelve analysts surveyed by Bloomberg expect prices to fall next week, nine were bullish and four neutral. The metal retreated for a fifth day yesterday, the worst losing streak since May 17 and slipped below $1,300 an ounce earlier today for the first time since July 22. Physical demand slowed in the past several weeks, according to Standard Bank Group Ltd.

Gold is heading for the first annual drop in 13 years after some investors lost faith in the metal as a store of value. The slump that wiped $58.9 billion from the value of gold funds hurt investors including hedge fund billionaire John Paulson as well as Barrick Gold Corp. (ABX) and other mining companies. U.S. equities reached a record this week after data showed the nation expanded 1.7 percent in the second quarter, more than economists surveyed by Bloomberg had expected.

“Why would I want to hold gold if the U.S. economy is recovering and equities are doing so well?” said Andrey Kryuchenkov, a commodity strategist in London at VTB Capital, a unit of Russia’s second-largest lender. “Physical buying probably won’t be enough to revive gold and have a sustained rebound. The sentiment will still remain bearish.”

Bond Index

The metal fell 22 percent to $1,312.13 an ounce in London this year. Last month’s 7.3 percent gain was the most since January 2012 as prices rebounded from a 34-month low of $1,180.50 on June 28. The Standard & Poor’s GSCI gauge of 24 commodities lost 0.4 percent since the start of January and the MSCI All-Country World Index of equities gained 11 percent. Treasuries declined 3.1 percent, the Bloomberg U.S. Treasury Bond Index shows.

Second-quarter U.S. growth announced July 31 was higher than the median projection of 1 percent in a Bloomberg survey of 85 economists and more than the 1.1 percent gain in the three months through March. Job gains and rising home and stock prices are shoring up consumer sentiment. Expansion will accelerate in this and the following four quarters, according to the median of as many as 101 economist estimates.

U.S. 10-year Treasuries fell to a three-week low two days ago, before rebounding after the Federal Reserve pledged to keep buying $85 billion in bonds every month. The note resumed declines yesterday. Chairman Ben S. Bernanke said in July it’s too early to decide whether to curb debt buying, after saying June 19 that purchases could slow if the economy improves. Bullion rose 70 percent from December 2008 to June 2011 as the Fed bought more than $2 trillion of debt.

Physical Purchases

While gold’s record 23 percent slide in the second quarter spurred demand for jewelry and coins, July’s rally slowed those purchases, Standard Bank said. The metal for immediate delivery in China averaged about $18 more than the London price since mid-July, Shanghai Gold Exchange data show. That’s lower than the premium of about $33 from mid-April, when bullion entered a bear market.

India, last year’s biggest buyer, will limit imports to less than the 845 metric tons bought in the year ended in March as it restricts inbound shipments to curb a record trade deficit, Finance Minister Palaniappan Chidambaram said July 31. Physical demand in China will be “strong” so long as prices are “attractive,” UBS AG said in a July 30 report, following talks with clients in Asia last week. China was the second-biggest buyer last year.

Metal Vaults

Asian demand led banks from JPMorgan Chase & Co. to UBS to Deutsche Bank AG to offer gold-storage services in Singapore. Australia & New Zealand Banking Group Ltd. opened a vault that can hold 50 tons in the nation last month. The bank, whose clients include central banks, sovereign wealth funds and asset managers, is one of the top three providers of gold into China.

Hedge funds and other large speculators more than doubled bets on price gains since cutting net-long positions to a six-year low on June 25, U.S. Commodity Futures Trading Commission data show. They held 70,067 contracts by July 23, the most in four months. The increase was mostly driven by short covering, or purchases to close out bets on price drops, in addition to bullish wagers, Barclays Plc wrote in a July 29 report.

While holdings in exchange-traded products backed by gold reached a three-year low of 1,965.2 tons yesterday as investors sold 666.7 tons this year, the sales slowed every week since the end of June, data compiled by Bloomberg show. Investors sold 4.6 tons so far this week.

Paulson’s Holding

Billionaire John Paulson owns the largest stake in the SPDR Gold Trust, the biggest bullion ETP. His PFR Gold Fund tumbled 23 percent in June, extending this year’s loss to 65 percent. Greenlight Capital Re Ltd. sold some gold and bought shares in gold miners in the second quarter, Chairman David Einhorn said July 30 on a conference call. Einhorn, who has said central banks’ stimulus efforts will fuel inflation and increase gold’s value, said his view on the metal hasn’t changed.

The 30-member Philadelphia Stock Exchange Gold and Silver Index slid 42 percent this year. Toronto-based Kinross Gold Corp., Canada’s third-largest producer by sales, said July 31 it took a $2.29 billion writedown on assets and suspended dividend payments. Barrick, the biggest gold miner, said yesterday it took $8.7 billion of writedowns.

Seven of 13 people surveyed expect raw sugar to rise next week and six were bearish. The commodity slid 14 percent to 16.78 cents a pound on ICE Futures U.S. in New York this year.

Corn Bulls

Sixteen of 30 surveyed anticipate higher corn prices and 12 said the grain will drop, while 15 of 31 said soybeans will rise and 12 expect lower prices. Sixteen traders predicted gains in wheat and nine were bearish. Corn fell 33 percent to $4.6725 a bushel this year in Chicago. The December contract, which reflects supply after the U.S. harvest, declined 22 percent this year. Soybeans lost 15 percent to $11.9275 a bushel, as wheat slipped 15 percent to $6.6025 a bushel.

Nine traders and analysts surveyed expect copper to rise next week, five were bearish and five neutral. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, fell 12 percent to $6,998 a ton this year.

China’s Purchasing Managers’ Index increased to 50.3 last month, exceeding the 49.8 median forecast in a Bloomberg survey and up from 50.1 in June, the government said yesterday. That suggested a slowdown in the biggest user of industrial metals may be stabilizing as the government takes steps to support growth. An index of the six main metals traded on the LME dropped 12 percent this year.

“Industrial metals are keeping a close eye on developments in China,” said Ole Hansen, the head of commodity strategy at Saxo Bank A/S in Copenhagen. “Recent pro-growth statements and better manufacturing data should help this sector establish a floor.”

Gold survey results: Bullish: 9 Bearish: 12 Hold: 4
Copper survey results: Bullish: 9 Bearish: 5 Hold: 5
Corn survey results: Bullish: 16 Bearish: 12 Hold: 2
Soybean survey results: Bullish: 15 Bearish: 12 Hold: 4
Wheat survey results: Bullish: 16 Bearish: 9 Hold: 2
Raw sugar survey results: Bullish: 7 Bearish: 6 Hold: 0
White sugar survey results: Bullish: 7 Bearish: 5 Hold: 1
White sugar premium results: Widen: 1 Narrow: 6 Neutral: 6

-- With assistance from Agnieszka Troszkiewicz and Isis Almeida in London, Glenys Sim in Singapore, Jae Hur in Tokyo, Helen Sun in Shanghai, Phoebe Sedgman in Melbourne, Jeff Wilson in Chicago and Marvin G. Perez and Luzi Ann Javier in New York. Editors: John Deane, Dan Weeks

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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