By Nicholas Larkin - Jun 7, 2013 9:57 PM GMT+0400
Gold traders are the most bullish since before the bear market began two months ago after a retreat in equities from an almost five-year high and a weakening dollar spurred demand for bullion.
Nineteen analysts surveyed by Bloomberg expect prices to rise next week, with eight bearish and six neutral, the largest proportion of bulls since March 22. Global stocks that rose to the highest since June 2008 on May 22 reached a six-week low yesterday amid mounting speculation about whether the Federal Reserve will taper stimulus. The U.S. Dollar Index, a measure against six currencies, slipped to the lowest in three months.
Gold bars are stored in a vault at the United States Mint at West Point in West Point, New York. Photographer: Scott Eells/Bloomberg
June 4 (Bloomberg) -- Stephen Cucchiaro, chief investment officer at Windhaven Investment Management Inc., talks about the outlook for gold prices and investment strategy. He speaks with Tom Keene and Sara Eisen on Bloomberg Television's "Surveillance." Adam Parker, chief U.S. equity strategist at Morgan Stanley, also speaks. (Source: Bloomberg)
One-ounce, 24 K gold coin blanks are displayed at the United States Mint at West Point in West Point, New York. Photographer: Scott Eells/Bloomberg
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Weekly sales of gold held through exchange-traded products are poised for the second-lowest level since March after the value of holdings slumped by about $45 billion this year. The start of the bear market in April spurred a surge in demand for coins and jewelry, with the U.S. Mint saying June 5 that its sales may be a record this year. Demand has been so great inIndia, the biggest buyer, that the government is curbing imports to ease the nation’s current-account deficit.
“The concern is that we see stock markets come under pressure and then see an increase in risk aversion,” said Mark O’Byrne, the executive director of Dublin-based GoldCore Ltd., a brokerage that sells and stores bullion coins and bars. “Gold’s already had a correction, so people see value in the gold market. There has been significant technical damage done to gold and therefore it will take a period of time to recover.”
Gold Price
The metal fell 17 percent to $1,383.12 an ounce in London this year after climbing the past 12 years, and is trading 28 percent below the record $1,921.15 set in September 2011. The Standard & Poor’s GSCI gauge of 24 commodities dropped 2.4 percent since the start of January and the MSCI All-Country World Index (MXWD) of equities rose 7.4 percent. Treasuries lost 0.9 percent, a Bank of America Corp. index shows.
Gold retreated as some investors lost faith in the metal as a store of value and the U.S. economy improved. The Fed’s Beige Book showed June 5 that the economy expanded at a “modest to moderate” pace in 11 of 12 Fed districts. TheChicago Board Options Exchange Volatility Index (VIX) jumped 39 percent since mid-May and reached a seven-week high June 5. The gauge of S&P 500 Index options prices is still 64 percent below its peak in 2011.
Hedge funds and other large speculators raised their net-long position, or bets on higher prices, by 35 percent in the week to May 28, the biggest jump in two months, U.S. Commodity Futures Trading Commission data show. Most of the increase came from a cut in short wagers from the previous week’s record.
Physical Demand
Physical demand surged around the world after prices slid to a two-year low of $1,321.95 on April 16. Gold and silver coin purchases from the U.S. Mint may reach a record this year if the current demand continues, Richard Peterson, its acting director, said in a June 5 interview. The mint sold 12,000 ounces of American Eagle gold coins this month, compared with 70,000 in May and 209,500 ounces in April.
Bullion for immediate delivery in China averaged about $31 more than the London price since mid-April. The premium had averaged about $7 in the previous 12 months, Shanghai Gold Exchange data show. Demand in India is poised for a quarterly record, the World Gold Council said May 29. Imports will be 300 to 400 metric tons in the period, almost half of last year’s total shipments, the London-based group estimates.
Indian Imports
India raised a duty on gold imports to 8 percent from 6 percent on June 5, following earlier moves to widen curbs on shipments that contributed to a $32.6 billion current-account gap in the fourth quarter. Imports may fall as much as 20 percent this year because of the higher levy, Bachhraj Bamalwa, a director at the All India Gems & Jewelery Trade Federation, said the same day.
Demand from speculators that helped push prices up as much as sevenfold in the past 12 years is waning. Taurus Funds Management Pty Ltd. shut its precious metals fund in May because of investor redemptions, said Gordon Galt, a principal at the Sydney-based fund manager.
Prices dropped in seven of the past eight months because the unprecedented money printing by central banks failed to increase inflation at a time when mounting optimism the global recovery is gaining momentum pushed U.S. equities to records last month. Fed Chairman Ben S. Bernanke said in May that the pace of quantitative easing could be reduced if the jobless rate keeps dropping.
Global Expansion
“The tail risks largely have been mitigated,” said London-based Warren Rogers, a fund manager at Duet Asset Management Ltd., which has been betting on lower prices. “You have the Fed telling you QE is over, you have a bull market in S&P 500. Of course the price can rally some, with so many shorts, but I think the broader path is quite down.”
Global economic expansion will accelerate in this and the following three quarters, according to economist estimates compiled by Bloomberg. Bullion may drop to $1,100 in a year, Credit Suisse Group AG forecast last month. Nouriel Roubini, professor of economics and international business at New York University, has forecast a decline toward $1,000 by 2015.
The 494.8 tons of gold that’s been sold from ETP (.GLDTONS)s this year now exceeds additions in the previous two years. This week’s sales of 11.09 tons follow 10.15 tons last week, the smallest since the end of March, data compiled by Bloomberg show.
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