Gold traders are the most bullish in five months on signs that demand for coins and jewelry increased during a plunge in prices that prompted billionaire investor John Paulson to cut his holding for the first time since 2011.
Thirteen analysts surveyed by Bloomberg expect prices to rise next week, four were bearish and five neutral, the highest proportion of bulls since March 8. Consumer buying of the metal jumped 53 percent in the second quarter from a year earlier, almost making up for the record sales of exchange-traded products backed by bullion, World Gold Council data show.
Gold is set for its first annual decline in 13 years after some investors lost faith in the metal as a store of value, sparking losses for mining companies and hedge funds. Paulson, the biggest investor in the SPDR Gold Trust, the largest gold ETP, cut his stake by 53 percent in the second quarter, an Aug. 14 government filing showed. The slump spurred purchases and a 16 percent price rally from a 34-month low on June 28.
“People buying physical gold are more about having a store of wealth in the medium to long term whereas the ETP liquidations are more the speculative side,” said Mark O’Byrne, the executive director of Dublin-based GoldCore Ltd., a brokerage that sells and stores bullion coins and bars. “Physical demand remains very robust. People see gold prices as good value at these levels.”
The metal fell 18 percent to $1,368.95 an ounce in London this year. It reached $1,180.50 on June 28 after entering a bear market in April. The Standard & Poor’s GSCI gauge of 24 commodities rose 0.5 percent since the start of January and the MSCI All-Country World Index of equities gained 10 percent. Treasuries declined 3.4 percent, the Bloomberg U.S. Treasury Bond Index shows.
Consumer demand jumped by 376.5 metric tons to 1,083.2 tons in the second quarter as global bar and coin purchases reached a record and jewelry usage was the most since 2008, the producer-funded World Gold Council said yesterday. While there may be a “dampening” of demand in the next few months in India, last year’s biggest buyer, due to restrictions on imports, 2014 consumption should be higher than last year in the nation and in China, the next biggest user, the London-based council said.
There are signs of rising demand elsewhere. Turkey’s bullion imports this year through July were 80 percent higher than in all of 2012, data on the Istanbul Gold Exchange’s website show. Trading in physical gold is “good” this year, and interest increased as prices fell, David Burns, head of commodities at Commerzbank AG, said in an Aug. 13 interview in London. Fabricators are buying and private clients are seeing a second opportunity to enter the market, he said.
Physical demand helped push August futures on the Comex in New York above the December contract for the first time on Aug. 2, compared with trading at a discount before then. Backwardation, when nearby contracts are more expensive than longer-dated futures, can signal concern that near-term supplies are tightening. The three-month lease rate, reflecting the cost of borrowing gold, reached a four-year high in London on Aug. 7.
Prices will advance to $1,600 by year-end because investors “overreacted” to speculation that the Federal Reserve will trim monthly bond purchases and as governments maintain efforts to boost economic growth, Adrian Day, president of Adrian Day Asset Management in Annapolis, Maryland, said this week. Fed Bank of St. Louis President James Bullard said Aug. 14 that policy makers should be careful in changing course based solely on economic forecasts.
Gold could have a “sharp rally” if investors begin closing out bets on price declines, Day said. Short positions gained ninefold since November and reached a record July 9, U.S. Commodity Futures Trading Commission data show. While hedge funds and other large speculators increased net-long positions by 54 percent from a six-year low set in June, the bullish wagers are down 76 percent since October, the data show.
Investors sold 682.4 tons from ETPs this year, including 404.4 tons in the second quarter, as unprecedented money printing by central banks failed to accelerate inflation. Paulson & Co. cut its SPDR stake to 10.2 million shares in the three months ended June 30 from 21.8 million at the end of the first quarter, a Securities and Exchange Commission filing showed.
Paulson, who told investors as recently as last month that they should own gold, cut the stake “due to a reduced need for hedging,” according to an e-mailed response to questions. The New York-based firm’s PFR Gold Fund lost 59 percent this year through July. Billionaire George Soros and Daniel Loeb sold their entire SPDR stakes in the past quarter, filings showed.
Prices fell in eight of the past 10 months on speculation the Fed will slow stimulus as the economy recovers. A Bloomberg survey this month showed 65 percent of economists expect Fed Chairman Ben S. Bernanke to reduce the $85 billion of monthly asset purchases in September, probably starting with a cut of $10 billion. The metal will fall to $1,050 by the end of next year, Goldman Sachs Group Inc. estimates.
Central-bank gold purchases won’t be enough to prevent further declines, Goldman said in a July 24 report. Nations added 534.6 tons to reserves last year, the most since 1964, and may buy 350 tons this year, the World Gold Council said.
Seven of 13 people surveyed expect raw sugar to rise next week and five were bearish. The commodity slid 12 percent to 17.09 cents a pound on ICE Futures U.S. in New York this year.
Thirteen of 30 surveyed anticipate higher corn prices and 12 said the grain will fall, while 16 of 30 said soybeans will gain and nine expect lower prices. Twelve traders predicted losses in wheat and nine were bullish. Corn fell 34 percent to $4.62 a bushel this year in Chicago. Soybeans lost 10 percent to $12.6775 a bushel, as wheat fell 17 percent to $6.425 a bushel.
Eight traders and analysts surveyed expect copper to climb next week, eight were bearish and three neutral. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, fell 6.8 percent to $7,393 a ton this year.
An index of the six main metals traded on the LME gained 9.1 percent since June 24, reaching a two-month high yesterday, while the S&P 500 Index of equities climbed to a record earlier this month. Global economic expansion will increase to 3.8 percent in 2014, from 3.1 percent this year, the International Monetary Fund estimates.
“The main reason markets have been improving is better data globally and overall improvement in sentiment,” said Georgette Boele, a commodities strategist at ABN Amro Group NV in Amsterdam. “Base metals will be relatively OK in an environment where the economy is improving.”
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