Gold Posts Longest Rally Since 2011, Defying Goldman View

Gold posted a second straight quarterly advance, the first back-to-back gains since 2011, as increasing demand for a haven drove a surprise 2014 rally.

The dollar reached a one-month low today versus the euro as a gauge of U.S. business activity fell more than forecast. The manufacturing data overshadowed a report showing gains for the housing market. Bullion rose 3 percent since the end of March.

Prices climbed 10 percent this year, outpacing gains for indexes of commodities, equities and Treasuries. The rebound defied bearish predictions from Goldman Sachs Group Inc. and Societe Generale SA, who expected last year’s slump to continue. Instead, escalating violence in Iraq and tension between Ukraine and Russia has boosted demand for a geopolitical hedge, while the Federal Reserve has said that interest rates will stay low for a “considerable time.”

“Some people are moving into safe-haven investments as they are getting mixed signals from the economy,” George Gero, a vice president and precious-metals strategist at RBC Capital Markets in New York, said in a telephone interview. “The weak dollar is also providing support.”

Gold futures for August delivery rose 0.2 percent to settle at $1,322 an ounce at 1:43 p.m. on the Comex in New York. Prices touched $1,330.40, the highest for a most-active contract since April 14.

Bullion jumped 6.1 percent this month. The Standard & Poor’s GSCI Spot Index of 24 commodities rose 1.4 percent. The MSCI All-Country World Index of equities gained 1.7 percent, and the Bloomberg Treasury Bond Index slid 0.2 percent.

Gold climbed 70 percent from December 2008 to June 2011 as the Fed bought debt and cut borrowing costs.

ETP Holdings

Investors haven’t been swayed to increase holdings even with this year’s gains. Assets in exchanged-traded products backed by bullion fell to 1,712.9 tons on June 20, the lowest since October 2009, data compiled by Bloomberg show. The metal plunged 28 percent last year, the most in three decades, wiping more than $73 billion from the value of the funds.

“Gold’s recent gains are unlikely to last over the longer term,” Barclays Plc said today in a report. “If and when geopolitical tensions ease, we continue to expect gold to return to its downward trajectory.”

Goldman Forecast

Volatility in futures is near a four-year low, at a time when trading volumes and open interest in Comex contracts are waning. Prices will drop to $1,050 in 12 months, Goldman analysts reiterated in a June 23 report, unchanged from their outlook at the start of the year.

Shipments into India, the world’s second-biggest consumer, probably plunged 77 percent in the first half as government restrictions to contain a record current-account deficit increased costs and deterred buyers, according to the All India Gems & Jewellery Trade Federation.

The slowdown in physical buying will pressure prices, according to Tommy Capalbo, a broker at Newedge Group in New York.

Silver futures for September delivery fell 0.4 percent to $21.056 an ounce on the Comex. Prices rose 6.6 percent since March, extending last quarter’s 2 percent rally.

To contact the reporter on this story: Debarati Roy in New York at droy5@bloomberg.net

To contact the editors responsible for this story: Millie Munshi at mmunshi@bloomberg.net Patrick McKiernan

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