Gold may extend a rally through to the end of December, paring the first full-year loss since 2000, as rising physical demand across Asia helps to counter a selloff in exchange-traded products led by billionaire John Paulson.
Prices may reach $1,450 an ounce by the end of the year, according to a median of estimates in a survey of 11 traders, jewelers and analysts who attended the India Gold Convention in Jaipur on Aug. 16-17. The metal, which was at $1,373.97 today, fell 18 percent this year.
Bullion rebounded since reaching a 34-month low in June as demand for jewelry, bars and coins soared from India to China and Turkey. The rally may help stem the outflow from exchange-traded products, or ETPs, after gold plunged 23 percent last quarter, the most since at least 1920. Consumer demand in India soared 71 percent in the second quarter, while in China it jumped 87 percent, according to the World Gold Council.
“The fact that the market has done so well and technically moved above $1,350 an ounce is very positive,” said Jeffrey Rhodes, managing director of the financial institutions division of the Kaloti Jewellery Group, a Dubai-based gold trader and refiner. “This suggests quite a strong end to the year,” supported by strong physical demand, particularly from India and China, he said.
Bullion traded as high as $1,384.55 an ounce today, rebounding from $1,180.50 on June 28, the lowest in almost three years. 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 9.6 percent. Treasuries declined 3.6 percent, the Bloomberg U.S. Treasury Bond Index shows.
“There is some evidence in the gold market that demand is starting to stabilize following the huge outflows from ETFs and futures in the first half of the year,” JPMorgan Chase & Co. said in a report Aug. 16. “Spot gold is above forward prices, which is very unusual and likely reflects strong demand in the physical market bidding up spot prices,” the bank 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.
Prices will advance to $1,600 by yearend 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 last week.
Investors sold 681.4 metric 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 Gold Trust 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.
“Since April, when prices fell sharply and rose and fell right back, a lot of investors have pulled back from the market and are waiting to see how low price can go,” said Jeffrey Christian, managing partner at CPM Group. “Once you get to September and October a lot of investors, central banks and fabricators who have been waiting to see how low price can go, will step up and buy.”
Prices may rally to $1,420 an ounce by the end of the year and trade in a range of $1,300 to $1,500 for the next two years, Christian said in an interview on Aug. 16.
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 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.
“The impact of so much money being printed globally in the long term is positive for gold,” said Chirag Mehta, a fund manager at Quantum Asset Management Co.“Some tapering will be there but still they are going to print money. The result of this monetary inflation will be price inflation going forward” and that should benefit gold, he said.
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