Gold Bearish Outlook Extended as Price Nears $1,200: Commodities

Photographer: Prashanth Vishwanathan/Bloomberg

Consumer demand in China rose 30 percent in the 12 months through September and is set to overtake India as the world’s biggest user this year, the London-based World Gold Council said. Close

Consumer demand in China rose 30 percent in the 12 months through September and is set... Read More

Close
Open
Photographer: Prashanth Vishwanathan/Bloomberg

Consumer demand in China rose 30 percent in the 12 months through September and is set to overtake India as the world’s biggest user this year, the London-based World Gold Council said.

Gold analysts are bearish for a third week, the longest stretch since February 2010, as prices approach $1,200 an ounce and a stronger U.S. economy improves the chance that the Federal Reserve will reduce fiscal stimulus.

Sixteen analysts surveyed by Bloomberg News expect gold to fall next week, 11 are bullish and two neutral. Prices tumbled 26 percent this year, heading for the first annual drop in 13 years and the biggest in more than three decades. Bullion last traded below $1,200 on June 28.

Investors cut holdings in exchange-traded products backed by gold every month this year as prices tumbled, erasing $69.4 billion. Some lost faith in the metal as a store of value as inflation failed to accelerate, while equities and the dollar rallied. This week’s reports of gains in U.S. home sales and manufacturing signaled the Federal Reserve may start easing economic stimulus that helped send gold to a record in 2011.

“U.S. growth seems to be gathering momentum,” said Ole Hansen, the head of commodity strategy at Saxo Bank A/S in Copenhagen. “Gold has been suffering again lately as taper talk and a friendly risk environment have provided better investment opportunities elsewhere.”

Bullion closed at $1,229.05 in London today, after touching $1,210.61, the lowest since July 5. The Standard & Poor’s GSCI gauge of 24 commodities dropped 2.3 percent since the end of December, while the MSCI All-Country World Index of equities gained 17 percent. The Bloomberg U.S. Treasury Bond Index lost 2.8 percent.

Curb Stimulus

Fed officials said at their Oct. 29-30 meeting that they may reduce $85 billion in monthly bond purchases “in coming months” as the economy improves. Gains in manufacturing, technology and housing fueled “modest to moderate” economic growth from early October through mid-November, the central bank said in its Beige Book survey released Dec. 4. Gold rose 70 percent from December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system.

Policy makers, who next meet Dec. 17-18, probably will slow stimulus from March, economists surveyed by Bloomberg News last month said. The market may be underestimating the probability “of a vote to taper” this month, and the dollar may have begun a multi-year bull market, Credit Suisse Group AG wrote in a Dec. 4 report. The Bloomberg U.S. Dollar Index rose 3.1 percent this year, touching an 11-week high on Dec. 3.

Investor Sales

Investors sold 800.8 metric tons from gold-backed exchange-traded products this year, pushing holdings to the lowest since March 2010, data compiled by Bloomberg show. Billionaire John Paulson, who owns the largest stake in the SPDR Gold Trust, the biggest gold ETP, told clients last month that he personally wouldn’t invest more money in his gold fund. Goldman Sachs Group Inc. forecast prices will drop to $1,110 in 12 months.

Hedge funds and other money managers reduced their bets on price gains for five straight weeks and are the least-bullish since June 2007, U.S. Commodity Futures Trading Commission data showed today. The net-long position was 26,774 New York futures and options contracts by Dec. 3, CFTC data show. Short bets rose for a fifth week to 79,631, near the record in July.

‘More Attractive’

Bullion is trading 4.1 percent above a 34-month low of $1,180.50 set on June 28. It rallied as much as 21 percent in the following two months as lower prices boosted jewelry, bar and coin purchases. While gold should be sold into rallies, lower prices make buying the metal “more attractive by the day,” Standard Bank Group Ltd. said in a report two days ago.

BullionVault, a London-based online service for investors to trade physical gold, said its gauge of client buying was at 54 last month, near a six-month high of 54.3 set in October. A reading above 50 means more buyers than sellers. November’s reading compares with a peak of 71.1 in September 2011, the month prices reached a record $1,921.15.

Gold looks oversold, and purchases may increase in China ahead of the Lunar New Year festival at the end of January, said Mark O’Byrne, a director at brokerage GoldCore Ltd. in Dublin. Consumer demand in the nation rose 30 percent in the 12 months through September and is set to overtake India as the world’s biggest user this year, the London-based World Gold Council said.

While gold’s directional-movement indicator shows a bearish trend strengthened over the past month, the 14-day relative-strength index fell earlier this week to near 30, a level that suggests to some analysts using technical charts that the price may be poised to rebound. Bullion jumped 1.7 percent on Dec. 4, the most in six weeks. The RSI gauge was at 38.1 today.

Sugar Survey

Six people surveyed expect raw sugar to climb next week and the same amount were bearish. The commodity lost 15 percent this year to 16.59 cents a pound on ICE Futures U.S. in New York.

Eleven of 28 people surveyed anticipate higher corn prices, with the same amount saying the grain will fall and six neutral. Eleven of 28 said soybeans will drop, 10 expect gains and seven were neutral. Twelve forecast wheat to fall, with nine bullish and six neutral. Corn fell 38 percent in Chicago this year to $4.3425 a bushel. Soybeans slid 6 percent to $13.255 a bushel, as wheat dropped 16 percent to $6.51 a bushel.

Copper Bulls

Eleven traders and analysts surveyed expect copper to climb next week, three were bearish and five neutral. Copper for delivery in three months, the London Metal Exchange’s benchmark contract, fell 10 percent this year to $7,122 a ton.

U.S. economic growth will accelerate to 2.6 percent in 2014, from 1.7 percent this year, helping global expansion to the highest since 2011, economist estimates compiled by Bloomberg News show. The S&P GSCI gauge of raw materials reached a six-week high today. Supply will increase for all six main industrial metals next year, resulting in surpluses for copper, nickel and zinc, according to Barclays Plc.

“People are still relatively optimistic towards the U.S. economy,” said Jeremy Baker, a senior commodities strategist who helps oversee about $600 million at Harcourt Investment Consulting AG in Zurich. “The fundamentals for commodities are actually improving. But there are still lingering concerns that there are some supply overhangs in commodities.”

Gold survey results: Bullish: 11 Bearish: 16 Hold: 2
Copper survey results: Bullish: 11 Bearish: 3 Hold: 5
Corn survey results: Bullish: 11 Bearish: 11 Hold: 6
Soybean survey results: Bullish: 10 Bearish: 11 Hold: 7
Wheat survey results: Bullish: 9 Bearish: 12 Hold: 6
Raw sugar survey results: Bullish: 6 Bearish: 6 Hold: 0
White sugar survey results: Bullish: 5 Bearish: 7 Hold: 0
White sugar premium results: Widen: 4 Narrow: 2 Neutral: 6

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

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.