Gold Traders Split on Outlook as Asian Jewelers Buy: Commodities

Gold traders are divided on whether bullion will extend declines after the biggest plunge in three decades generated buying from investors and jewelers.

Fifteen analysts surveyed by Bloomberg expect prices to rise next week, 14 were bearish and a further five were neutral. Gold tumbled 13 percent in the two sessions through April 15, the biggest drop in 33 years, on concern European governments would follow Cyprus in selling off reserves, while an unanticipated slowdown in Chinese growth sparked declines across commodities. In the past four days, bullion has rebounded 2.5 percent on the Comex in New York.

Asian buyers have stepped up bullion purchases since prices fell, with imports by India, the world’s biggest consumer, expected to jump by 36 percent through June compared with a year earlier, the Bombay Bullion Association Ltd. said. Australia’s Perth Mint said April 17 that sales doubled from last week. Hedge funds have reduced bets on higher prices by 69 percent from early October while Goldman Sachs Group Inc. and Societe Generale SA predicted declines.

“Clearly a lot of psychological damage has been done, as well as the practical damage of margin calls on leveraged positions and collateralized gold so we should not expect a recovery as quick as the decline,” said Adrian Day, who manages about $160 million of assets as president of Adrian Day Asset Management in Annapolis, Maryland. “The drop seemed very overdone to me.”

Price Slides

Gold prices fell 17 percent this year to $1,395.60 an ounce on Comex, after rallying for the past 12 consecutive years. Prices, which slid into a bear market on April 12, are down 27 percent from a peak reached in September 2011. The Standard & Poor’s GSCI gauge of 24 commodities has dropped 6 percent this year, while the MSCI All-Country World Index of equities rose 4.8 percent. Treasuries returned 0.7 percent, according to a Bank of America Corp. index.

Retail sales of gold tripled across China April 15 to April 16, the China Gold Association said. Chow Tai Fook Jewellery Group Ltd., the world’s largest jewelry chain, said customer traffic in Hong Kong and Macau rose as much as 25 percent April 13 to April 16. India and China accounted for more than half the world’s gold demand in 2012, according to the London-based World Gold Council, with jewelry making up 43 percent of global bullion demand.

Gold has become more favorable to some investors after prices dropped. Economist Dennis Gartman, who writes the daily Gartman Letter from Suffolk, Virgina, said yesterday he would buy gold and sell equities after the precious metal failed to break through lows set earlier in the week. Investor Jim Rogers said April 15 that he may begin buying bullion “if it goes down enough.”

Fund Outflows

Exchange-traded funds linked to gold have dropped $37.2 billion in 2013, the fastest pace in two years, according to EPFR Global. Holdings in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, have dropped to the lowest since April 2010, according to data on the fund’s website.

“I don’t think we will see another 10 percent drop in the very short term, and there could even be a rebound in the medium term, but the gold bull market definitely seems to be over,” Filip Petersson, a commodities strategist at SEB AB in Stockholm, said in an interview yesterday. “As long as outflows continue gold will have a hard time rebounding.”

Central Banks

Central banks are divided on whether gold is cheap enough to increase investment, after the two-day plunge through April 15 capped a $560 billion decline in value for reserves since the record in 2011. Sri Lanka’s central bank governor said falling prices are an opportunity for nations to raise gold reserves and that the island nation will consider buying more.

The Bank of Korea said the plunge isn’t a “big concern” because holding the metal is part of a long-term strategy for diversifying currency reserves. Reserve Bank of Australia’s assistant governor, Guy Debelle, said at a business lunch in Canberra on April 16 that gold has no “intrinsic value.”

Goldman Sachs predicts gold prices will reach $1,390 an ounce in New York in 12 months, with the target for the end of 2014 at $1,270. Prices may drop below $1,200 temporarily, Jeffrey Currie, the bank’s global commodities research head, said April 17. Societe Generale said April 2 that gold may fall to $1,375 an ounce by year-end.

Deutsche Bank AG said yesterday the precious metal has entered a “new reality” and may need to fall as low as $1,050 an ounce to bring its valuation versus other commodities back to historical averages.

Money managers’ were net long by 61,579 gold futures and options contracts as of April 16, down from a peak of more than 198,000 contracts in October, U.S. Commodity Futures Trading Commission data show.

Grain, Sugar

Fourteen of 25 corn traders surveyed expect corn to rise next week, while eight said the grain will drop. Fourteen analysts were bullish on soybeans, with 10 bearish. Eleven predicted rising wheat prices, with seven expecting a decline. Corn is down 9.3 percent this year on prospects of a rebound in U.S. output this year following the 2012 drought, while soybeans have dropped 1.9 percent on the Chicago Board of Trade as the South American harvest accelerated. Wheat is down 8.5 percent.

Ten of 17 people surveyed expect raw sugar prices to decline, with four bullish and three neutral. Futures are down 8.4 percent this year on ICE Futures in New York, extending last year’s 16 percent drop, on concern record supplies from Brazil will extend a global glut.

Copper Bears

Copper traders were bearish for a fourth straight week, as eight of 18 surveyed anticipate declining prices next week. Five said prices would rise and a further five were neutral. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, is down 12 percent since the start of the year.

Commodities tracked by the GSCI touched a nine-month low yesterday and dropped 2.5 percent this week, the third straight decline. The economy in China, the world’s largest consumer of commodities including copper, pork and soybeans, expanded 7.7 percent in the first quarter, down from 7.9 percent in the prior quarter, the National Bureau of Statistics said April 15. Commodities may drop about 2 percent this year on higher supplies of crude oil and grains, the International Monetary Fund said April 16.

“The recent weakness in commodity prices is going to be sustained,” Julian Jessop, chief global economist and head of commodities research at Capital Economics Ltd., said by phone yesterday from London. “There is weakness in underlying demand with the global economic recovery still fragile, and supply prospects for many commodities are not as bullish as many would presume.”

Gold survey results: Bullish: 15 Bearish: 14 Hold: 5
Copper survey results: Bullish: 5 Bearish: 8 Hold: 5
Corn survey results: Bullish: 14 Bearish: 8 Hold: 3
Soybean survey results: Bullish: 14 Bearish: 10 Hold: 2
Wheat survey results: Bullish: 11 Bearish: 7 Hold: 3
Raw sugar survey results: Bullish: 4 Bearish: 10 Hold: 3
White sugar survey results: Bullish: 5 Bearish: 8 Hold: 4
White sugar premium results: Widen: 6 Narrow: 1 Neutral: 11
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