Gold Analysts Bearish on Signs of U.S. Compromise: Commodities

Photographer: Guenter Schiffmann/Bloomberg

While gold advanced as much as 21 percent from a 34-month low in June as lower prices boosted jewelry, bar and coin buying in Asia, demand may now be waning. Close

While gold advanced as much as 21 percent from a 34-month low in June as lower prices... Read More

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Photographer: Guenter Schiffmann/Bloomberg

While gold advanced as much as 21 percent from a 34-month low in June as lower prices boosted jewelry, bar and coin buying in Asia, demand may now be waning.

Gold analysts have turned the most bearish in a month on increased confidence that U.S. lawmakers will reach a deal to avoid default and evidence that Asian demand for physical bullion is weakening.

Fifteen analysts surveyed by Bloomberg News expect prices to decline next week, eight are bullish and four neutral, the highest proportion of bears since Sept. 13. Prices rose after the first partial U.S. government shutdown in 17 years began Oct. 1, as investors sought a haven. President Barack Obama didn’t accept or reject House Republicans’ plan to increase the debt limit and end the government shutdown as the two sides entered further talks.

The wrangling over the U.S. budget helped stem this year’s slump in prices, with the metal heading for its first annual drop since 2000 after some investors lost faith in gold as a store of value. The retreat also spurred demand for physical bullion in Asia and there are signs that is now easing, with fewer sales in India and China, the two biggest consumers.

“Gold is coming off because nobody believes that they’ll breach the deadline for the debt ceiling,” said Jonathan Bouchet, a director at Delman SA in Geneva, which manages assets including precious metals. “Either Obama will bend to the Republican party, or it will be the opposite, but there just has to be an agreement. We’re not seeing physical buyers coming back in. It’s been very quiet regarding Asian buying.”

Coin Buying

Bullion fell 23 percent to $1,285.82 an ounce in London this year and is 33 percent below the record $1,921.15 reached in September 2011. The Standard & Poor’s GSCI gauge of 24 commodities dropped 1.3 percent since the start of January and the MSCI All-Country World Index of equities gained 13 percent. The Bloomberg U.S. Treasury Bond Index lost 2.6 percent.

While gold advanced as much as 21 percent from a 34-month low in June as lower prices boosted jewelry, bar and coin buying in Asia, demand may now be waning. India’s government sought to cut gold imports to combat a record current-account deficit. Gold and silver purchases in the nation, last year’s biggest consumer, totaled $800 million last month, from $4.6 billion a year earlier, the Commerce Ministry said Oct. 9.

Net bullion imports to China from Hong Kong fell to 110.2 metric tons in August, from 113.2 tons a month earlier, according to data compiled by Bloomberg. Mainland China doesn’t publish such data. Some banks might have run out of import quotas after purchases in the first seven months jumped 89 percent from a year ago, said Duan Shihua, a senior partner at Shanghai Leading Investment Management Ltd.

Borrowing Authority

The U.S. government has about a week before its borrowing authority runs out. The White House said in a statement that “no specific determination was made” after a 90-minute meeting yesterday that both sides described as constructive.

While the Federal Reserve unexpectedly refrained from tapering stimulus at its Sept. 17-18 meeting, minutes of the gathering released Oct. 9 showed most policy makers said the central bank would probably reduce the pace of $85 billion in monthly bond purchases this year. Gold rose 70 percent from December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system.

Short-term Treasuries are little changed this year on speculation the Fed under Vice Chairman Janet Yellen, who voted for every stimulus measure since 2008, will keep interest rates at a record low. Obama nominated Yellen on Oct. 9 to succeed Ben S. Bernanke, whose term ends Jan. 31.

Debt Expansion

“In the longer term, the policy of expanding debt will lead to higher inflation,” said Lance Roberts, who oversees $600 million as chief executive officer of STA Wealth in Houston. “With the nomination of Yellen, some expect quantitative easing to be maintained or even increased.”

Hedge funds and other large speculators more than doubled bets on gains in gold since the end of June to 78,654 contracts by the week ended Sept. 24, narrowing this year’s drop in net-long positions to 23 percent, U.S. Commodity Futures Trading Commission data show. The CFTC hasn’t released figures this month due to the partial government shutdown.

Investors in gold-backed exchange-traded products sold 711.8 tons this year, wiping $62.5 billion from the value of the funds and reducing holdings to the lowest since May 2010, data compiled by Bloomberg show. John Paulson, the billionaire hedge fund manager and biggest investor in the SPDR Gold Trust (GLD), the largest gold ETP, cut his stake in the product by 53 percent in the second quarter, a government filing showed.

Sugar Survey

Seven of 14 people surveyed expect raw sugar to gain next week and five were bearish. The commodity slid 3.7 percent to 18.78 cents a pound on ICE Futures U.S. in New York this year.

Sixteen of 23 people surveyed anticipate lower corn prices and four said the grain will rise, while 16 of 24 said soybeans will fall and four expect higher prices. Eleven predicted losses in wheat and six were bullish. Corn fell 38 percent to $4.3475 a bushel this year in Chicago. Soybeans dropped 9 percent to $12.825 a bushel, as wheat slid 12 percent to $6.8425 a bushel.

Seven traders and analysts surveyed expect copper to slide next week, six were bullish and nine neutral. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, dropped 9.6 percent to $7,166.75 a ton this year.

While the International Monetary Fund cut its global economic growth forecast for 2014 to 3.6 percent on Oct. 8, from July’s 3.8 percent prediction, that’s higher than this year’s projected expansion of 2.9 percent.

“Commodities generally are a play on global growth,” said Edward Channing, investment team director at Brooks MacDonald Asset Management in London, which manages about 5 billion pounds ($8 billion) of assets. “It has taken five years to try to move forward from a global growth perspective and the U.S. is finally getting to the place where it needs to be, so it’s not in any politician’s best interest to put that at risk.”

Gold survey results: Bullish: 8 Bearish: 15 Hold: 4
Copper survey results: Bullish: 6 Bearish: 7 Hold: 9
Corn survey results: Bullish: 4 Bearish: 16 Hold: 3
Soybean survey results: Bullish: 4 Bearish: 16 Hold: 4
Wheat survey results: Bullish: 6 Bearish: 11 Hold: 5
Raw sugar survey results: Bullish: 7 Bearish: 5 Hold: 2
White sugar survey results: Bullish: 7 Bearish: 6 Hold: 1
White sugar premium results: Widen: 4 Narrow: 5 Neutral: 5

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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