Gold traders are the most bullish in five weeks after Federal Reserve Chairman Ben S. Bernanke said the U.S. still needs stimulus.
Nineteen analysts surveyed by Bloomberg expect prices to rise next week, nine were bearish and three neutral. Gold fell 23 percent last quarter, with the decline accelerating after the Fed chairman said June 19 that bond buying could slow if the economy improves. Unprecedented money printing by central banks since the global recession boosted bullion buying as a hedge against inflation.
Gold is heading for the first annual drop in 13 years after some investors lost faith in it as a store of value. The retreat in prices to a 34-month low on June 28 spurred demand for jewelry and gold coins, diminishing supply and driving the cost of borrowing the metal to a 4 1/2-year high, according to data compiled by Bloomberg.
“With the Fed comments, with the increased cost of funding a short position and some recalibration in peoples’ thinking about the end of quantitative easing, the onus is really on the bears now,” said Ross Norman, chief executive officer of Sharps Pixley Ltd., a brokerage handling physical bullion in London. “Physical demand is supporting the market very nicely.”
The metal fell 24 percent to $1,279.80 an ounce in London this year. Prices rose 8.4 percent from $1,180.50 on June 28. The Standard & Poor’s GSCI gauge of 24 commodities declined 0.4 percent since the start of January and the MSCI All-Country World Index of equities rose 8.9 percent. Treasuries lost 2.8 percent, a Bank of America Corp. index shows.
Gold as much as doubled from 2008 to a record $1,921.15 in September 2011 as the U.S. central bank, which currently buys $85 billion of bonds a month, led nations in cutting interest rates and purchasing debt. The U.S. Dollar Index, a measure against six major trading partners, slid from a three-year high after Bernanke said two days ago that “highly accommodative monetary policy for the foreseeable future” is still required.
The one-month lease rate for bullion, which reflects the cost of borrowing metal, reached 0.3038 percent on July 10, the highest since December 2008. Limited appetite to lend gold against “decent” desire to borrow indicates a tightening forward market, Standard Chartered Plc wrote in a report.
Jewelry and coin demand around the world surged after gold dropped into a bear market in April. The U.S. Mint sold 21,000 ounces of American Eagle coins so far this month, on course to beat the 57,000-ounce June total, data on its website show.
Demand is weakening elsewhere, with Australia’s Perth Mint saying its coin and bar sales dropped for a second month in June, falling 47 percent. Physical consumption isn’t as strong as in April, partly because India, the biggest buyer, imposed curbs on imports last month to trim its trade deficit, Standard Chartered said. Indian imports probably slid 80 percent in June and will be “weak” in July and August, the bank estimates.
Investors sold 645.45 metric tons from gold-backed exchange-traded products this year, erasing $60 billion from the value of the funds, data compiled by Bloomberg show. Holdings reached 1,983.6 tons this week, the lowest since May 2010. Billionaire John Paulson’s PFR Gold Fund tumbled 23 percent in June, extending this year’s loss to 65 percent. He owns the largest stake in the SPDR Gold Trust, the biggest bullion ETP.
U.S. inflation has so far failed to accelerate and higher interest rates would also reduce gold’s allure. Expectations for gains in U.S. consumer prices, as measured by the break-even rate for 10-year Treasury Inflation Protected Securities, fell 16 percent this year. Fed funds futures showed a 48.4 percent probability that policy makers will raise the benchmark rate by December 2014, versus 32.9 percent on June 18, the day before the central bank’s last policy statement.
“It will be difficult for gold to go back to its March levels any time soon,” said Nic Johnson, who helps manage $30 billion of commodity assets at Pacific Investment Management Co. in Newport Beach, California. “The overall sentiment around gold has turned negative.”
Hedge funds and other large speculators cut bets on higher prices by 83 percent since October. They held a net-long 34,301 contracts on July 2, from 31,197 a week earlier, U.S. Commodity Futures Trading Commission data show.
Goldman Sachs Group Inc. says gold will reach $1,050 by the end of 2014 and Credit Suisse Group AG forecasts $1,150 in about a year. The decline is nearing an end and a drop below levels some mines need to break even will help halt the rout, Australia & New Zealand Banking Group Ltd. said in a report yesterday.
Three of 10 people surveyed expect raw sugar to fall next week and three were bullish. The commodity slid 18 percent to 16.09 cents a pound on ICE Futures U.S. in New York this year.
Fifteen of 27 surveyed anticipate lower corn prices and 10 said the grain will rise, while 11 of 27 said soybeans will gain and the same number expect falling prices. Fourteen traders predicted declines in wheat and seven were bullish. Corn fell 26 percent to $5.1475 a bushel this year in Chicago. The December contract, which reflects supply after the U.S. harvest, is down 14 percent this year. Soybeans lost 9.7 percent to $12.73 a bushel, as wheat slipped 12 percent to $6.815 a bushel.
Nine traders and analysts surveyed expect copper to climb next week, four were bearish and five were neutral. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, fell 12 percent to $6,961.25 a ton this year.
The S&P GSCI gauge of raw materials climbed to a three-month high yesterday. It fell for three months through June, the worst run since May last year, on mounting concern that economic growth will slow in China, the biggest user of everything from copper to coal. Global growth will struggle to accelerate this year, the International Monetary Fund said July 9, reducing its forecast to 3.1 percent from April’s 3.3 percent.
“Tapering should be a good thing from a fundamental point of view if the U.S. economy becomes stronger,” said Carole Ferguson, an analyst at SP Angel Corporate Finance LLP, a broker and adviser in London. “Everyone knows that Chinese growth is slowing down, but it’s just a question of whether you get a hard or soft landing. What you’ll see maybe are commodities being supported at these levels, not necessarily going up.”
Gold survey results: Bullish: 19 Bearish: 9 Hold: 3 Copper survey results: Bullish: 9 Bearish: 4 Hold: 5 Corn survey results: Bullish: 10 Bearish: 15 Hold: 2 Soybean survey results: Bullish: 11 Bearish: 11 Hold: 5 Wheat survey results: Bullish: 7 Bearish: 14 Hold: 2 Raw sugar survey results: Bullish: 3 Bearish: 3 Hold: 4 White sugar survey results: Bullish: 3 Bearish: 3 Hold: 4 White sugar premium results: Widen: 1 Narrow: 2 Neutral: 7