Gold Bulls Dominate for Longest Run in Bear MarketNicholas Larkin
Gold traders are bullish for a fourth week, the longest run since the bear market began in April, as Federal Reserve Chairman Ben S. Bernanke said he’ll maintain stimulus if growth misses expectations.
Fifteen analysts surveyed by Bloomberg expect prices to rise next week, nine were bearish and five neutral. Gold climbed above $1,300 an ounce on July 17 for the first time in more than three weeks after Bernanke said in testimony to Congress that monthly asset purchases “are by no means on a preset course.” Bullion rose 70 percent from December 2008 through June 2011 as the central bank bought more than $2 trillion of debt.
Gold is heading for the first annual drop in 13 years after some investors lost faith in the metal as a store of value. The Fed chairman said last week the U.S. still needs stimulus, after saying on June 19 that bond buying could slow if the economy improves. Bullion’s plunge to a 34-month low spurred demand for jewelry and coins, and demand from China is “incredibly strong,” Standard Chartered Plc said.
“Bernanke is very mindful of the fact that the recovery can falter quite easily,” said Dan Smith, a commodities analyst at Standard Chartered in London. “Things are going to remain quite volatile. As long as rates don’t go up too much and quantitative easing is eased back slowly, then I don’t see any reason why gold can’t go higher.”
The metal fell 23 percent to $1,291.27 an ounce in London this year. It rose 9.4 percent since falling to $1,180.50 on June 28, reaching $1,300.88 on July 17. The Standard & Poor’s GSCI gauge of 24 commodities added 0.8 percent since the start of January and the MSCI All-Country World Index of equities gained 9.7 percent. Treasuries lost 2.6 percent, a Bank of America Corp. index shows.
Gold reached a record $1,921.15 in September 2011 as the U.S. central bank, which is buying $85 billion of bonds a month, led nations in cutting interest rates and purchasing debt. The Fed could keep buying bonds for longer if “financial conditions -- which have tightened recently -- were judged to be insufficiently accommodative to allow us to attain our mandated objectives,” Bernanke said two days ago.
Investors see a 40.7 percent chance policy makers will raise the federal funds rate by the end of 2014, compared with 53.2 percent odds on July 10, according to data compiled by Bloomberg. The 10-year yield on Treasuries fell 8.9 percent since reaching a 23-month high on July 8.
While physical buying has slowed in India, last year’s biggest consumer, because of import restrictions imposed by the government, there are signs of strengthening demand from China to Japan, Barclays Plc wrote in a July 15 report. Tanaka Kikinzoku Kogyo K.K., Japan’s biggest gold retailer, said sales rose threefold in the second quarter, exceeding its purchases for the first time in a year.
Demand for physical gold helped push July futures on the Comex in New York above the August contract. Backwardation, when nearby contracts are more expensive than longer-dated futures, can signal concern about near-term supply. One-month gold forward offered rates, which show the interest rate at which dealers will lend gold for dollars, were the most negative since 2008 last week, driving the cost of borrowing the metal to a 4 1/2-year high in London.
The outlook for prices is still bearish even with the concern about near-term physical supply, Societe Generale SA said in a July 17 report. Rallies in prices are still spurring sales, UBS AG said in a report yesterday. Goldman Sachs Group Inc. predicts gold will reach $1,050 by the end of 2014 and Credit Suisse Group AG forecasts an average of $1,150 in the third quarter of next year.
Bullion dropped a record 23 percent in the second quarter amid mounting optimism about the U.S. economy, pushing the S&P 500 Index of stocks to a record close this week. While the International Monetary Fund cut its 2013 forecast for U.S. growth to 1.7 percent on July 9 from 1.9 percent in April, it says expansion will accelerate to 2.7 percent next year.
Gold prices have fallen this year because investors see a reduced need for “disaster insurance,” Bernanke said during questioning from the Senate Banking Committee yesterday. “One reason gold prices are lower is people are less concerned about extreme outcomes, particularly negative outcomes, and therefore they feel less need for whatever protection gold affords,” he said.
Investors sold 653 metric tons of gold from exchange-traded products this year, erasing $59.6 billion from the value of the funds, data compiled by Bloomberg show. Holdings reached a three-year low of 1,978.9 tons yesterday. Hedge funds and other large speculators cut bets on higher prices by 82 percent since October, holding a net-long 35,691 contracts on July 9, U.S. Commodity Futures Trading Commission data show.
This year’s slump may continue as mining companies sell future production to lock in returns, driving prices lower and spurring more sales, according to Societe Generale. The practice of hedging fell out of favor in the last decade amid gold’s 12-year bull run.
Four of 11 people surveyed expect raw sugar to gain next week and four were bearish. The commodity slid 17 percent to 16.25 cents a pound on ICE Futures U.S. in New York this year.
Fifteen of 23 surveyed anticipate lower corn prices and five said the grain will rise, while 12 of 23 said soybeans will drop and eight expect higher prices. Ten traders predicted declines in wheat and five were bullish. Corn fell 29 percent to $4.9475 a bushel this year in Chicago. The December contract, which reflects supply after the U.S. harvest, declined 18 percent this year. Soybeans lost 10 percent to $12.6375 a bushel, as wheat slipped 15 percent to $6.625 a bushel.
Seven traders and analysts surveyed expect copper to drop next week, three were bullish and five were neutral. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, fell 13 percent to $6,921 a ton this year.
Sixteen of 24 raw materials in the S&P gauge fell this year on concern that growth is slowing in China, the biggest commodities user. The index rebounded 9.2 percent since reaching a nine-month low on April 18. Four of the six main industrial metals will be oversupplied this year, Barclays estimates.
“You’ve obviously seen quite a heavy selloff, so a rebound in the short term is quite typical,” said Ross Strachan, a commodities economist at Capital Economics Ltd. in London. “We’re expecting industrial metals to fall further in the coming months due to weakness in demand.”
Gold survey results: Bullish: 15 Bearish: 9 Hold: 5 Copper survey results: Bullish: 3 Bearish: 7 Hold: 5 Corn survey results: Bullish: 5 Bearish: 15 Hold: 3 Soybean survey results: Bullish: 8 Bearish: 12 Hold: 3 Wheat survey results: Bullish: 5 Bearish: 10 Hold: 3 Raw sugar survey results: Bullish: 4 Bearish: 4 Hold: 3 White sugar survey results: Bullish: 4 Bearish: 4 Hold: 3 White sugar premium results: Widen: 2 Narrow: 4 Neutral: 5