Gold Analysts More Bullish on Fed Stimulus Outlook: Commodities

Photographer: Kimimasa Mayama/Bloomberg

A woman displays gold rings in Tokyo. While gold is heading for its first annual drop in 13 years after some investors lost faith in the metal as a store of value, lower prices boosted jewelry, bar and coin purchases. Close

A woman displays gold rings in Tokyo. While gold is heading for its first annual drop... Read More

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Photographer: Kimimasa Mayama/Bloomberg

A woman displays gold rings in Tokyo. While gold is heading for its first annual drop in 13 years after some investors lost faith in the metal as a store of value, lower prices boosted jewelry, bar and coin purchases.

Gold analysts are the most bullish in six weeks as Janet Yellen, the nominee to run the Federal Reserve, signaled the U.S. central bank is in no hurry to curb economic stimulus, reviving demand for the metal as a haven.

Eighteen analysts surveyed by Bloomberg News expect prices to gain next week, nine are bearish and two neutral, the largest proportion of bulls since Oct. 4. Gold rose 70 percent from December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system, fueling expectations of accelerated inflation and a weaker dollar. President Barack Obama nominated Yellen, the bank’s vice chairman, last month to succeed Chairman Ben S. Bernanke, whose term expires Jan. 31.

The economy and labor market are performing “far short of their potential” and must improve before the Fed will consider curbing its $85 billion of monthly bond purchases, Yellen said at her nomination hearing yesterday. While gold is heading for its first annual drop in 13 years after some investors lost faith in the metal as a store of value, lower prices boosted jewelry, bar and coin purchases. Demand from China, India and the Middle East surged a combined 27 percent in the 12 months through September, the World Gold Council estimates.

“It’s unlikely that Bernanke will do anything at his last meeting if he perceives that his successor would prefer to leave policy unchanged,” said Nic Brown, head of commodities research at Natixis SA in London. “The dollar may drop back, too. This is all potentially positive for gold prices in the very short term.”

Gold’s Decline

Bullion, down 23 percent this year to $1,288.14 an ounce in London, added 2.1 percent since touching a four-week low of $1,261.42 on Nov. 12. The Standard & Poor’s GSCI gauge of 24 commodities dropped 4.6 percent since the end of December, while the MSCI All-Country World Index of equities gained 18 percent. The Bloomberg U.S. Treasury Bond Index lost 2.3 percent.

Economists surveyed by Bloomberg News Nov. 8 forecast the Fed probably will delay reductions in bond purchases until March. Gold slid earlier this week as the Bloomberg U.S. Dollar Index set an eight-week high Nov. 12, after the U.S. reported more job gains for October than economists forecast. Bullion’s 30-week correlation coefficient to the dollar index, a measure against 10 major currencies, is at minus 0.59, with a figure of minus 1 meaning the two always move in opposite directions.

‘Supporting Recovery’

“Supporting the recovery today is the surest path to returning to a more normal approach to monetary policy,” Yellen said in prepared remarks to the Senate Banking Committee. Through her testimony, she publicly voiced her views for the first time in seven months on the unprecedented monetary stimulus that she’s supported.

China’s demand for jewelry, bars and coins rose 30 percent to 996.3 metric tons in the 12 months through September, the London-based World Gold Council said in a report yesterday. Usage gained 24 percent to 977.6 tons in India and 25 percent to 225.8 tons in the Middle East.

The increased demand from China, last year’s second-biggest consumer, puts it on pace to overtake India as the top user at a time when the Indian government imposes import restrictions on gold to curb its current-account deficit. Physical demand has been weaker than a month ago, when gold also traded below $1,300, Standard Bank Group Ltd. wrote in a Nov. 12 report.

Exiting ETPs

Investors sold 760.9 tons through gold-backed exchange-traded products this year, erasing $64.6 billion from the value of the funds and pushing holdings to the lowest since April 2010, data compiled by Bloomberg show. John Paulson, the billionaire hedge fund manager and biggest investor in the SPDR Gold Trust, the largest gold ETP, cut his stake in the product by 53 percent in the second quarter, government filings show. His holdings were unchanged in the third quarter.

Paulson’s PFR Gold Fund fell 16 percent in September, according to a report to investors obtained by Bloomberg News.

ETP investors sold metal as speculation grew that the U.S. central bank will slow stimulus as the economy strengthens. Prices will drop to $1,000 by the end of next year as other assets such as U.S. equities become more attractive, ABN Amro Group NV said in a report yesterday. Goldman Sachs Group Inc. sees the metal at $1,230 in six months and $1,110 in a year.

While hedge funds and other speculators cut bets on price gains by 13 percent in the week ended Nov. 5, their net-long position of 87,689 contracts is almost three times higher than in June, U.S. Commodity Futures Trading Commission data show. The holdings are down from 253,653 contracts in August 2011, a month before prices reached a record $1,921.15.

Sugar, Grain

Seven of 13 people surveyed expect raw sugar to fall next week, five were bullish, and one was neutral. The commodity lost 9.7 percent this year to 17.61 cents a pound on ICE Futures U.S. in New York.

Ten of 20 people surveyed anticipate lower corn prices, with six saying the grain will rise and four neutral. Ten of 20 said soybeans will fall, seven expect gains and three were neutral. Ten of 19 predicted losses in wheat, with six bullish and three neutral. Corn fell 37 percent in Chicago this year to $4.3775 a bushel. Soybeans slid 6.8 percent to $13.14 a bushel, as wheat dropped 16 percent to $6.57 a bushel.

Fourteen traders and analysts surveyed expect copper to fall next week, seven were bullish and two neutral. Copper for delivery in three months, the London Metal Exchange’s benchmark contract, fell 11 percent this year to $7,028.75 a ton.

China Slows

The euro area’s recovery came close to a halt in the third quarter, the European Union’s statistics office in Luxembourg said yesterday. China’s expansion will slow to 7.4 percent in 2014, the smallest gain since 1990, from 7.6 percent this year, according to economist estimates compiled by Bloomberg. That’s still higher than growth in the U.S., which is expected to accelerate to 2.6 percent, from 1.6 percent this year.

“We’ve known for a while that you’re not going to have another two years of quantitative easing, it’s really been a question of timing,” said Carole Ferguson, an analyst at SP Angel Corporate Finance LLP, a broker and adviser in London. “Commodities will go sideways until the end of year. Next year, it will be a question of whether demand is coming through from a recovery in the U.S. economy and elsewhere.”

Gold survey results: Bullish: 18 Bearish: 9 Hold: 2
Copper survey results: Bullish: 7 Bearish: 14 Hold: 2
Corn survey results: Bullish: 6 Bearish: 10 Hold: 4
Soybean survey results: Bullish: 7 Bearish: 10 Hold: 3
Wheat survey results: Bullish: 6 Bearish: 10 Hold: 3
Raw sugar survey results: Bullish: 5 Bearish: 7 Hold: 1
White sugar survey results: Bullish: 4 Bearish: 7 Hold: 2
White sugar premium results: Widen: 6 Narrow: 4 Neutral: 3

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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