Gold Traders Most Bullish in 10 Weeks on Stimulus: Commodities
Gold traders are the most bullish in 10 weeks and investors are hoarding a record amount of bullion as central banks pledge to do more to spur economic growth.
Eighteen of 27 analysts surveyed by Bloomberg expect prices to rise next week and five were bearish. A further four were neutral, making the proportion of bulls the highest since Aug. 24. Holdings in gold-backed exchange-traded products gained the past three months, the best run since August 2011, data compiled by Bloomberg show. They reached a record 2,588.4 metric tons yesterday, valued at $140 billion, the data show.
The Bank of Japan (8301) expanded its asset-purchase program on Oct. 30 for the second time in two months, increasing it by 11 trillion yen ($137 billion). The Federal Reserve said last week it plans to continue buying bonds and central banks from Europe to China have pledged more action to boost economies. Gold rose 70 percent as the Fed bought $2.3 trillion of debt in two rounds of quantitative easing from December 2008 through June 2011.
“Central banks are all very concerned about a depression, so they’re keeping monetary policies as loose as possible,” said Mark O’Byrne, the executive director of Dublin-based GoldCore Ltd., a brokerage that sells and stores everything from quarter-ounce British Sovereigns to 400-ounce bars. “People are buying gold as a store of value to protect against currency depreciation.”
Gold rose 7.6 percent to $1,681.97 an ounce in London this year, heading for a 12th straight annual gain, the longest winning streak in at least nine decades. The Standard & Poor’s GSCI gauge of 24 commodities lost 2.5 percent since the end of December, and the MSCI All-Country World Index of equities climbed 11 percent. Treasuries returned 1.9 percent, a Bank of America Corp. index shows.
Bullion slid as much as 2 percent to a two-month low today as a Labor Department report that showed American employers added more workers than economists had forecast in October bolstered the dollar.
The BOJ said its fund will increase to 66 trillion yen, a separate credit loan program will stay at 25 trillion yen and it will also offer unlimited loans to banks to boost credit demand. The Fed said Oct. 24 it will maintain $40 billion in monthly purchases of mortgage debt and probably hold interest rates near zero until mid-2015. The European Central Bank has said it is ready to buy bonds of indebted nations and China approved a $158 billion subways-to-roads construction plan.
Some investors buy bullion as a hedge against inflation and a weaker dollar, and the metal generally earns returns only through price gains, increasing its allure as interest rates decline. Inflation expectations measured by the break-even rate for five-year Treasury Inflation Protected Securities jumped 35 percent this year and reached a 16-month high in September.
ETP holdings jumped about 193 tons since the end of July and now account for almost a year of mine production, according to data compiled by Bloomberg and Barclays Plc. Options traders are also bullish, with the 10 most widely held contracts giving the right to buy the metal at prices from $1,800 to $2,300 between November and March, data from Comex in New York show.
Hedge funds’ bets on a rally declined for two weeks after reaching the highest since August 2011 on Oct. 9, U.S. Commodity Futures Trading Commission data show. Speculators cut their net- long position by 12 percent in the week ended Oct. 23 from the prior week, the most since July, to 161,987 futures and options, the data show.
The U.S. Mint sold 59,000 ounces of American Eagle gold coins last month, 14 percent fewer than in September, data on its website show. This year’s sales of 543,500 are down 39 percent from the same period in 2011.
While prices slid for three consecutive weeks through Oct. 26, the longest losing streak in more than a year, this year’s average of $1,662 is set to be a record. A faster increase in prices compared with income growth will curb jewelry usage, Standard Bank Plc said in a report e-mailed on Oct. 30.
Demand in India, last year’s biggest buyer, slid the past several months as record local prices cut demand, according to Bachhraj Bamalwa, chairman of the All India Gems & Jewellery Trade Federation. Indian consumers usually boost purchases before the wedding season and religious festivals later in the year, and that should improve consumption, Bamalwa said.
Barack Obama and Mitt Romney face off in a Nov. 6 presidential election and an Obama victory would support gold because “market uncertainty” will be removed, Edel Tully, an analyst at UBS AG in London, wrote in an Oct. 31 report. An Obama win may be positive for bullion because investors see greater monetary accommodation and currency debasement from a Democratic administration, according to Ross Norman, the chief executive officer of London bullion brokerage Sharps Pixley Ltd.
In other commodities, 12 of 19 traders and analysts surveyed expect copper to rise next week and seven were bearish. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, added 1.2 percent to $7,688.75 a ton this year.
Four of 10 people surveyed said raw sugar will gain next week and the same amount expected a decline. The commodity slid 17 percent to 19.41 cents a pound since the start of January on the ICE Futures U.S. exchange in New York.
Fifteen of 28 people surveyed anticipate higher corn prices next week and eight were bearish, while 14 of 29 said soybeans will climb and nine predicted a drop. Corn rallied 15 percent to $7.4275 a bushel in Chicago trading this year as soybeans rose 27 percent to $15.38 a bushel. Both crops reached records since August as the worst U.S. drought in a half century hurt crops.
The GSCI gauge of raw materials erased this year’s gain last week after entering a bull market in the third quarter. The last annual decline was in 2008 and the index (MXWD) made annual advances in 11 of the past 13 years. The International Monetary Fund cut its global growth forecast for next year to 3.6 percent from 3.9 percent on Oct. 9.
“We see the weakness in the global economy continuing to be a drag on commodity prices,” said Ross Strachan, a commodities economist at Capital Economics Ltd. in London. “Global stimulus mainly is not having very much effect at this point. It’s struggling to feed through into the economy due to the uncertainty that persists.”
Gold survey results: Bullish: 18 Bearish: 5 Hold: 4 Copper survey results: Bullish: 12 Bearish: 7 Hold: 0 Corn survey results: Bullish: 15 Bearish: 8 Hold: 5 Soybean survey results: Bullish: 14 Bearish: 9 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: 2 Narrow: 3 Neutral: 5
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