Gold traders are the most bearish in nine weeks after Federal Reserve policy makers backed plans to taper stimulus if the economy strengthens, eclipsing a surge in demand for physical metal that drove prices to a two-month high.
Twelve analysts surveyed by Bloomberg expect prices to fall next week, eight were bullish and two neutral. That’s the highest proportion of bears since June 21, a week before prices reached a 34-month low. Gold is heading for back-to-back monthly gains for the first time since September after speculators cut bearish bets by 27 percent from a record in July.
Bullion is set for the first annual drop in 13 years after some investors lost faith in the metal as a store of value, spurring at least $26 billion of writedowns in the mining industry and losses for John Paulson, the billionaire hedge fund manager. Minutes released Aug. 21 showed Fed policy makers were “broadly comfortable” in slowing debt purchases. Surging demand for jewelry, coins and bars in Asia helped prices rally as much as 18 percent since the end of June.
“We may have seen the worst in terms of investor liquidation and the gold market is much better balanced now, but we are probably not out of the woods yet,” said Ole Hansen, the head of commodity strategy at Saxo Bank A/S in Copenhagen. “We continue to have the Fed-tapering talk. The negative view is still driven by this.”
The metal fell 17 percent to $1,397.35 an ounce in London this year. Prices climbed to a two-month high of $1,398.75 today, rebounding from as low as $1,180.50 on June 28. The Standard & Poor’s GSCI gauge of 24 commodities rose 0.6 percent since the start of January and the MSCI All-Country World Index of equities gained 9.3 percent. Treasuries declined 3.9 percent, the Bloomberg U.S. Treasury Bond Index shows.
Gold rose 70 percent from December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system by purchasing debt, increasing investors’ concern about currency debasement and accelerating inflation.
While most policy makers agreed changing the $85 billion of monthly purchases wasn’t yet appropriate, a few said it might soon be time to slow buying, according to minutes of the July 30-31 meeting.
Bullion climbed this month partly because U.S. speculators closed out bets on lower prices, rather than increasing bullish wagers, Standard Bank Group Ltd. said in an Aug. 21 report. Money managers’ net-long position rose 18 percent in the week to Aug. 13 as short bets fell 17 percent, more than the 3 percent drop in long wagers, U.S. Commodity Futures Trading Commission data show. The net-long position slid 71 percent since October.
The weaker investor sentiment is being reflected in U.S. Mint sales of American Eagle gold coins that slowed every month since peaking at 209,500 ounces in April, when gold entered a bear market. The mint sold 7,000 ounces so far this month, its website shows.
Paulson, the biggest investor in the SPDR Gold Trust, the largest gold-backed exchange-traded product, cut his stake in the fund by 53 percent to 10.2 million shares in the second quarter, a filing to the Securities and Exchange Commission showed. Billionaire George Soros and Daniel Loeb sold their entire investments in the product.
The 684.6-metric-ton drop in ETP assets this year wiped $54.3 billion from their value, data compiled by Bloomberg show. While holdings reached a three-year low on Aug. 8, sales totaled 24.2 tons so far this month, set to be the least since January. Outflows will be 700 tons this year, Barclays Plc estimates.
Prices that are 27 percent below the record $1,921.15 set in September 2011 increased physical demand in Asia. Consumer buying in India, last year’s biggest user, jumped 71 percent in the second quarter from a year earlier. Chinese purchases rose 87 percent, helping to push global bar and coin sales to a record and jewelry usage to the most since 2008, the London-based World Gold Council said Aug. 15.
Strengthening consumption helped keep the cost of borrowing gold for six months close to a four-year high. That may indicate a scarcity of metal, the London Bullion Market Association says. The August futures contract on the Comex in New York flipped to a premium to December this month for the first time since they started trading. The so-called backwardation signals concern about near-term supply.
Gold will average $1,300 in the fourth quarter, rising to $1,350 in the final three months of next year, according to the median of as many as 17 analyst estimates compiled by Bloomberg. Some analysts predict prices are bottoming as physical usage rises and mining companies plan future output curbs. Production isn’t sustainable at prices below $1,250, Gold Fields Ltd. Chief Executive Officer Nick Holland said in an interview in June.
Barrick Gold Corp. (ABX), the biggest producer, said Aug. 1 it may sell, close or curb output at 12 mines from Peru to Papua New Guinea. The 30-member Philadelphia Stock Exchange Gold and Silver Index fell 33 percent this year.
Thirteen of 15 people surveyed expect raw sugar to drop next week and two were bullish. The commodity slid 16 percent to 16.48 cents a pound on ICE Futures U.S. in New York this year.
Seventeen of 27 people surveyed anticipate higher corn prices and five said the grain will drop, while 20 of 27 said soybeans will rise and two expect lower prices. Twelve traders predicted gains in wheat and seven were bearish. Corn fell 32 percent to $4.72 a bushel this year in Chicago. Soybeans slipped 6 percent to $13.245 a bushel, as wheat slid 17 percent to $6.4725 a bushel.
Eleven traders and analysts surveyed expect copper to fall next week, seven were bullish and five neutral. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, declined 7.2 percent to $7,362.75 a ton this year.
The S&P GSCI gauge of raw materials is little changed since Aug. 19, after advancing as much as 4.8 percent from a five-week low on Aug. 8. A preliminary index of Chinese manufacturing this month by HSBC Holdings Plc and Markit Economics exceeded economists’ expectations. Manufacturing and services in the euro area also grew more than forecast in August.
“Economic data, especially the ones from China, clearly outweighed tapering talks,” said Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt. “Metal prices are on an uptrend now again and I expect higher prices in the mid- to long-term.”
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