Gold Shines Again as Hedge Funds Boost Wagers on AdvanceMarvin G. Perez
Gold is precious again.
After investors sent bullion tumbling in 2013 by the most in three decades and kept dumping the metal earlier this year, demand is now up and prices are defying bearish forecasts. Money managers increased net-long positions for a fourth straight week through July 1 and holdings in exchange-traded products are climbing at the fastest pace since 2012.
“Gold’s performance has proven the bears wrong so far this year,” John Kinsey, who helps manage about C$1 billion ($935 million) at Caldwell Securities Ltd. in Toronto, said in a telephone interview yesterday. “We look for further strength through the balance of the year.”
While the latest government data point to an improved U.S. economy and Goldman Sachs Group Inc. and Societe Generale SA predict prices will retreat by year-end, inflation concerns and pockets of unrest are sending investors into gold as a haven. Prices extended gains after the Federal Reserve signaled earlier this month that it will keep interest rates near record lows and violence spread in Iraq and Ukraine.
The bulls are being rewarded. The value of the gold funds rose by $4.6 billion this year as prices rallied 9.5 percent. The metal has rebounded from last year’s 28 percent plunge that was triggered by muted inflation and as investors shunned the metal in favor of equities.
Futures slid 0.1 percent to $1,316.20 an ounce on the Comex in New York at 12:35 p.m., after five straight weekly gains, the longest streak since January. The Bloomberg Commodity Index of 22 raw materials climbed 5.2 percent in 2014, while the MSCI All-Country World Index of equities rose 4.9 percent. The Bloomberg Treasury Bond Index gained 2.8 percent.
The net-long position in gold rose 20 percent to 136,929 futures and options contracts in the week to July 1, according to U.S. Commodity Futures Trading Commission data published last week. That’s the highest since March 18 and up fourfold since the start of the year. Short holdings betting on a drop retreated 29 percent, a fourth straight decline.
Assets in bullion-backed global ETPs increased by 12.6 metric tons last week, the most since November 2012. Holdings are rebounding after six straight quarterly declines that began before gold entered a bear market in April 2013.
The U.S. central bank has kept its benchmark lending rate near zero percent since December 2008, even as it trimmed its monthly bond-buying program to $35 billion, after five straight cuts of $10 billion each since November. There is no need to change current monetary policy, Fed Chair Janet Yellen said July 2. Bullion jumped 70 percent from December 2008 to June 2011 as the Fed bought debt and held borrowing costs at an all-time low.
Gold sales from Australia’s Perth Mint climbed to 39,405 ounces in June, a four-month high. Sales of American Eagle gold coins by the U.S. Mint totaled 48,500 ounces in June, up 37 percent from May and the most since January. For the first six months of the year, the sales totaled 266,000 ounces, the lowest for the period since 2008.
The 2014 rally will reverse as global economic growth gains traction, according to Barnabas Gan, an economist at Singapore-based Oversea-Chinese Banking Corp. and the second-most accurate forecaster for precious metals tracked by Bloomberg in the past two years. Bullion will retreat to $1,150 by the end of the year, he said by telephone last week. Societe Generale’s Robin Bhar is the first-ranked forecaster.
Prices will drop to $1,050 in 12 months, Goldman analysts reiterated in a June 23 report, unchanged from their outlook at the start of the year. The U.S. added 288,000 jobs in June, bringing the unemployment rate to 6.1 percent, the lowest since September 2008, government data showed July 3. Gold futures dropped 0.8 percent that day, the most since May.
“Precious metals had risen because of the short-term concerns about inflation as well as geopolitical instability in many parts of the world,” Chad Morganlander, a money manager at St. Louis-based Stifel, Nicolaus & Co., which oversees about $160 billion in assets, said by telephone July 3. “As the global economy improves and the U.S. enters an acceleration of economic growth in the coming months, gold prices will reverse and move lower.”
Combined net-wagers across 18 U.S. traded commodities fell 2.3 percent to 1.29 million contracts as of July 1, the CFTC data show.
Bets on rising oil prices declined 4.4 percent to 330,148 contracts. West Texas Intermediate dropped for seven straight sessions through yesterday, the longest slide since December 2009.
A measure of net-long positions across 11 agricultural products slid 7.4 percent to 597,480 contracts, the eighth drop in nine weeks.
Cotton fields in Texas, the biggest U.S. grower, are recovering as drought conditions recede. Recent rains will help send inventories to a six-year high before the 2015 harvest. Investors cut their bullish wagers 34 percent to 16,346, the lowest this year.
The corn net-long holding fell for an eighth straight week, the longest slide since 2008. Prices entered a bear market in Chicago last week on the outlook for ample global supplies. Output in the U.S. will jump 2.8 percent to 14.314 billion bushels, the most ever, researcher The Linn Group Inc. estimated in a July 1 report.
“It’s hard to see that if you have record acres and record yields, how prices can go up in the face of that,” Sameer Samana, a senior international strategist at Wells Fargo Advisors LLC in St. Louis, which oversees $1.4 trillion, said by telephone July 3. “We’ve had acres planted go up pretty substantially over the last few years, so it’s really a matter of the weather just cooperating. And it looks like it’s going to.”