Bloomberg News

Gold Traders Most Bullish in Month on Debt Crisis: Commodities

December 12, 2011

(For more commodity columns, click CMMKT.)

Dec. 9 (Bloomberg) -- Gold traders are more bullish as investors buy metal at the fastest pace in a year to protect their wealth from Europe’s escalating debt crisis.

Eighteen of 26 surveyed by Bloomberg expect the metal to advance next week, the highest proportion since Nov. 11. Holdings in exchange-traded products backed by gold rose 108.5 metric tons to a record from the start of October, the most since the second quarter of 2010, data compiled by Bloomberg show. The extra bullion is valued at $5.99 billion.

Investors are now making a $130.2 billion bet on gold as European leaders meet in Brussels to seek ways to tackle the crisis that means Germany and France are under threat of losing their AAA rating from Standard & Poor’s. The European Central Bank yesterday cut interest rates for a second consecutive month to shore up growth, increasing the appeal of gold, which earns investors returns through price gains.

“People are buying out of concern, out of fear,” said Mark O’Byrne, executive director of Dublin-based GoldCore Ltd., a brokerage that sells everything from quarter-ounce British Sovereigns to 400-ounce bars. Central banks “are all pursuing extremely loose monetary policies and we still have negative real interest rates. That makes gold attractive.”

Bullion rose 21 percent to $1,718.30 an ounce this year on the Comex in New York, and reached a record $1,923.70 in September. The Standard & Poor’s GSCI gauge of 24 commodities rose 2.1 percent and the MSCI All-Country World Index of equities retreated 9.8 percent. Treasuries returned 9.3 percent, a Bank of America Corp. index shows.

Raw Sugar

Traders also anticipate gains in corn and soybeans and declines in copper and raw sugar next week, the surveys showed.

Investors held a record 2,358.2 tons of bullion through ETPs on Dec. 6, and bought 84.8 tons last month, the most since July. The combined tonnage is greater than the reserves of all but four of the world’s central banks and equal to more than 10 months of global mine supply.

Growth in the euro region will drop to 1.1 percent next year, from 1.6 percent this year, the International Monetary Fund forecasts. The ECB lowered its benchmark interest rate by 0.25 percentage point to 1 percent yesterday to match a record low. Bullion rose 3.6 percent in three days after the bank cut rates by the same amount on Nov. 3.

Unlimited Cash

The ECB also said it would offer banks unlimited cash for three years and loosened the collateral criteria it imposes when lending by making credit claims such as bank loans eligible and reducing the rating threshold on asset-backed securities.

Gold bar and coin demand in Europe more than doubled to 118.1 tons in the third quarter from a year earlier, data from the London-based World Gold Council show. European Union clients opened a record number of accounts with GoldCore last week and that may be exceeded this week, O’Byrne said.

Central banks are adding to their gold reserves for the first time in a generation. South Korea said last week it bought 15 tons in November to diversify its foreign-exchange reserves. The World Gold Council expects central banks to buy as much as 450 tons this year. Official holdings stand at 30,708 tons, data from the council show.

The banks were also buying gold in 1980 as prices rose to a then-record $850, only to drop for most of the next 20 years. Bullion tripled from 1999 through the beginning of 2008 as the banks sold more than 4,000 tons.

Global Equities

Increasing optimism that European leaders would find a way of containing the debt crisis spurred investors to add $2.56 trillion to the value of global equities since Nov. 26, according to data compiled by Bloomberg. A reversal of that sentiment would also be a threat to gold. The metal fell 5.6 percent in the two weeks through Nov. 25 as stocks declined 9 percent, with investors selling the metal to cover their losses.

“If there is no agreement at all, this could put pressure on the equities and commodities and might drag gold down,” said Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt.

Hedge funds and other money managers are paring bullish bets. Speculators cut their net-long position by 15 percent from a two-month high to 146,298 futures and options contracts in the two weeks to Nov. 29, data from the Commodity Futures Trading Commission show. Goldman Sachs Group Inc. said Dec. 1 it expects gold to trade at $1,940 in 12 months, 13 percent more than now.

Twelve of 26 traders and analysts surveyed by Bloomberg expect copper to fall next week, and five were neutral. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, declined 18 percent to $7,835.50 a ton this year.

ICE Futures

Raw sugar retreated 25 percent this year to 24.04 cents a pound on ICE Futures U.S. in New York. Seven of 10 people surveyed expect prices to drop next week.

Thirteen of 25 anticipate a gain in corn, while 14 of 26 said soybeans will increase. Corn declined 4.3 percent to $6.0175 a bushel in Chicago this year, and soybeans slid 20 percent to $11.2825 a bushel.

“The growth in the developed world is at risk, this makes us more cautious in the first six months of the year,” said David Field, who manages the 1.3 billion-euro ($1.7 billion) Carmignac Commodities fund at Carmignac Gestion in Paris. Growth in developing economies “will be strong enough, and that will drive a reasonably robust demand picture for commodities.”

--With assistance from Maria Kolesnikova, Agnieszka Troszkiewicz, Isis Almeida and Tony C. Dreibus in London, Jae Hur in Tokyo, Glenys Sim and Luzi Ann Javier in Singapore, Sungwoo Park in Seoul, Helen Sun in Shanghai and Jeff Wilson in Chicago. Editors: Stuart Wallace, Claudia Carpenter

To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net.

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net.


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