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Gold Bulls Retreat as Goldman Sees Peak Next Year: Commodities

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Gold Set for Worst Run Since ’04 as Fed Signals End of Purchases
One kilogram gold bars are seen in this arranged photograph at Gold Investments Ltd. bullion dealers in London, U.K. Photographer: Chris Ratcliffe/Bloomberg

Dec. 7 (Bloomberg) -- Gold traders are the least bullish in seven weeks as Goldman Sachs Group Inc. said the metal’s longest winning streak in at least nine decades will peak next year amid accelerating U.S. growth.

Fourteen of 31 analysts surveyed by Bloomberg expect prices to rise next week and 10 were bearish. A further seven were neutral, making the proportion of bulls the lowest since Oct. 19. Goldman lowered its 12-month estimate by 7 percent to $1,800 an ounce on Dec. 5 and said the metal would average $1,750 in 2014. Morgan Stanley said yesterday bullion will be among next year’s best-performing commodities.

Investors from John Paulson to George Soros are holding a $143.7 billion bet through record holdings in bullion-backed exchange-traded products as central banks from the U.S. to China pledge more steps to spur economic growth. While gold is headed for a 12th consecutive annual gain, it has failed to reach a new record this year for the first time since 2007. Global economic expansion will accelerate to 3.6 percent in 2013, from 3.3 percent this year, the International Monetary Fund estimates.

“Gold remains in the middle of a superstorm, but it’s not the perfect storm,” said Filip Petersson, an analyst at SEB AB in Stockholm. “It’s not the time to short gold but on the other hand it is not very appealing either. If the global recovery picks up pace without inflation the game is over for gold.”

Gold Price

Gold rose 8.8 percent to $1,701.70 in London this year, reaching a one-month low today. The Standard & Poor’s GSCI gauge of 24 commodities lost 1.7 percent since the beginning of January and the MSCI All-Country World Index of equities climbed 11 percent. Treasuries returned 2.8 percent, a Bank of America Corp. index shows.

The Federal Reserve said Oct. 24 it will maintain $40 billion in monthly purchases of mortgage debt and probably hold interest rates near zero until mid-2015. Gold rose 70 percent as the Fed bought $2.3 trillion of debt in two rounds of monetary easing from December 2008 through June 2011. Prices will average $1,853 in 2013, 11 percent more than this year’s average, Morgan Stanley estimates, citing a weaker dollar, low interest rates and purchases by central banks.

Investors buying bullion as a hedge against inflation and a weaker dollar generally earn returns only through price gains, increasing its allure as interest rates decline. The U.S. Dollar Index, a measure against six currencies, reached a six-week low two days ago. U.S. Mint sales of American Eagle gold coins more than doubled in November to 136,500 ounces, the most since July 2010, data on its website show.

ETP Holdings

Metal held through ETPs increased every year since 2003, when the first product was listed, and reached a record 2,627.6 metric tons Dec. 5, equal to almost a year of mine production, according to data compiled by Bloomberg. Soros Fund Management LLC raised its stake in the SPDR Gold Trust, the biggest gold ETP, by 49 percent in the third quarter and Paulson & Co. maintained the largest holding now valued at $3.6 billion, U.S. Securities and Exchange Commission filings show.

Gold will peak next year even as the Fed expands stimulus, according to Goldman, which expects a price of $1,825 in three months. It may drop to $1,625 by the end of 2014 without additional Fed easing or $1,500 if U.S. growth is better than expected, the bank said. America’s expansion will slow this quarter before accelerating in the next four, the median of as many as 73 economist estimates compiled by Bloomberg show.

While BNP Paribas SA expects central-bank stimulus to help gold set a new record next year, the bank cut its 2013 forecast for average prices by 1.8 percent yesterday to $1,865 and predicts $1,780 in 2014. That would be the first drop in average annual prices in more than a decade.

Record Average

Prices averaged a record $1,668 so far this year. They’re yet to beat the all-time high of $1,921.15 set in September 2011. The 5.3 percent drop since Oct. 5 pushed gold below its 100-day moving average this week for the first time since August. That may be because some hedge funds are selling the metal to cover redemptions, economist Dennis Gartman wrote in his daily newsletter yesterday.

“Hedge funds that have underperformed and need to raise liquidity for redemptions are likely to sell their winners,” said Jeffrey Sica, who helps oversee more than $1 billion of assets as president of SICA Wealth Management in Morristown, New Jersey. “We will get momentum again, but I don’t think it’s going to come until after the first of the year.”

The Washington-based IMF cut its 2013 growth forecast twice since July as Europe contends with a credit crisis and expansion slowed in China, last year’s second-biggest gold buyer. Jewelry demand slumped 9.8 percent in the first nine months, World Gold Council data show.

Hedge Funds

Hedge funds’ bets on a rally this year are on average about 28 percent lower than in 2011, U.S. Commodity Futures Trading Commission data show. They raised wagers in the three weeks to Nov. 27, with their net-long position of 168,238 contracts now 15 percent below the 13-month high set in October.

In other commodities, 15 of 25 traders and analysts surveyed expect copper to gain next week and six were bearish. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, climbed 5.8 percent to $8,040 a ton this year.

Four of 10 people surveyed expect raw sugar to rise next week and the same amount predict a decline. The commodity slid 18 percent to 19.19 cents a pound on ICE Futures U.S. in New York this year.

Super Cycle

Thirteen of 27 people surveyed anticipate higher corn prices next week and six said the grain will decline, while 18 of 28 said soybeans will rise and eight expect lower prices. Ten of 21 traders predicted higher wheat prices and five were bearish. Corn rose 15 percent to $7.415 a bushel this year as soybeans advanced 23 percent to $14.81 a bushel in Chicago. Wheat gained 31 percent at $8.5725 a bushel.

Morgan Stanley joined Goldman in predicting the so-called commodity super cycle isn’t over as the S&P GSCI gauge headed for its worst year since 2008. Goldman reiterated its recommendation that investors should be “overweight” in raw materials, and that prices will return 7 percent in 12 months.

The Fed will announce its latest policy decision Dec. 12 at a time when U.S. lawmakers seek a deal to avoid the so-called fiscal cliff of spending cuts and tax increases due at the start of next year. The European Central Bank has pledged more action and China approved a $158 billion subways-to-roads construction plan. The Bank of Japan is ready to take “appropriate and decisive action” if risks to its outlook become significant, Deputy Governor Kiyohiko Nishimura said Dec. 5.

“The upcoming fiscal-cliff delays in resolutions will certainly impact sentiment for commodity investments,” said Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland. “Global stimulus and growth rates would be commodity-price supportive due to higher demand.”

Gold survey results: Bullish: 14 Bearish: 10 Hold: 7
Copper survey results: Bullish: 15 Bearish: 6 Hold: 4
Corn survey results: Bullish: 13 Bearish: 6 Hold: 8
Soybean survey results: Bullish: 18 Bearish: 8 Hold: 2
Wheat survey results: Bullish: 10 Bearish: 5 Hold: 6
Raw sugar survey results: Bullish: 4 Bearish: 4 Hold: 2
White sugar survey results: Bullish: 4 Bearish: 4 Hold: 2
White sugar premium results: Widen: 3 Narrow: 1 Neutral: 6

To contact the reporter on this story: Nicholas Larkin in London at

To contact the editor responsible for this story: Claudia Carpenter at

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