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Gold traders are the most bullish in three weeks as investors’ bullion holdings expanded to a record after central banks pledged to do more to spur economic growth.
Twenty of 32 analysts surveyed by Bloomberg expect prices to rise next week, nine were bearish and three were neutral. Investors are holding the most metal ever through gold-backed exchange-traded products after buying 85.4 metric tons last month, the most since July 2011. Hedge funds’ bets on a rally are the biggest in seven months, U.S. Commodity Futures Trading Commission data show.
The European Central Bank held interest rates at a record low yesterday after agreeing on an unlimited bond-purchase program last month and the Federal Reserve announced a third round of quantitative easing. The Bank of Japan (8301) has said it will add to a fund that buys assets and China approved a $158 billion subways-to-roads construction plan. Gold rose 70 percent as the Fed bought $2.3 trillion of debt in two rounds of quantitative easing from December 2008 through June 2011.
“More and more people are going to anticipate inflation in the future because of quantitative easing and the amount of debt we’ve got in the system,” said Frederique Dubrion, the Geneva- based president and chief investment officer of Blue Star Advisors SA, which manages metals and energy assets. “We can print whatever amount of money we need, but you can’t print gold. It’s nobody’s liability, it’s a hard currency.”
Gold climbed 14 percent to $1,780.88 an ounce in London this year, reaching a 10-month high. It’s heading for a 12th consecutive annual gain. The Standard & Poor’s GSCI gauge of 24 commodities added 1.8 percent and the MSCI All-Country World Index of equities rose 13 percent. Treasuries returned 2.1 percent, a Bank of America Corp. index shows.
Some investors buy bullion as a hedge against inflation and a weaker dollar, and the metal generally earns returns only through price gains, increasing its allure as interest rates decline. The Fed said Sept. 13 it will probably hold the federal funds rate near zero until at least the middle of 2015. Inflation expectations measured by the break-even rate for five- year Treasury Inflation Protected Securities jumped 46 percent this year and reached a 16-month high on Sept. 17.
Gold is 7.3 percent below the record $1,921.15 reached in September 2011 and its average so far this year is set to be the highest ever. Prices reached all-time highs in euros, Swiss francs and South African rand this week.
The advance in ETP holdings is being reflected in coin purchases. Sales of American Eagle gold coins by the U.S. Mint jumped 76 percent to 68,500 ounces last month, the most since January, data on its website show. UBS AG said yesterday its physical gold sales on Oct. 3 to India, last year’s biggest buyer, were the most since April. Indian consumers usually accelerate purchases before the wedding season and religious festivals later this year.
While demand from India will be “strong” in the third and fourth quarters, overall consumption will slump 25 percent to about 750 tons this year, Marcus Grubb, managing director of investment research at the World Gold Council, told reporters in London on Oct. 3. Buying retreated this year amid surging local prices and as jewelers held a strike in March and April to protest government taxes on imports.
The metal rallied about 8.4 percent since moving above its 200-day moving average in August. Other technical indicators are signaling prices may be poised to decline. Bullion’s 14-day relative-strength index (MXWD) was at 67.6 today, near the level of 70 that indicates to some analysts who study such charts that a drop in prices may be imminent.
Recycling may expand as analysts from Bank of America to Deutsche Bank AG forecast record prices by next year. Scrap supplies will climb 5.4 percent to 1,750 tons this year, Morgan Stanley estimates. Investors added 208.7 tons to ETPs since the start of January, data compiled by Bloomberg show. That will drop to 100 tons in 2013, Morgan Stanley predicts.
Hedge funds and other speculators more than doubled their net-long position since Aug. 14 to the most since Feb. 28, CFTC data show. Barclays Plc said last month it opened a precious- metals vault in London that is one of the largest in Europe, because of demand from investors. ETP holdings reached a record 2,565.5 tons yesterday, valued at $146.9 billion, data show.
In other commodities, seven of 19 traders and analysts surveyed expect copper to drop next week and the same amount predicted little change. Five were bullish. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, climbed 9.1 percent to $8,292 a ton this year.
Eight of 15 people surveyed said raw sugar will gain next week and seven expected a decline. The commodity slid 8.5 percent to 21.31 cents a pound since the start of January on the ICE Futures U.S. exchange in New York.
Thirteen of 27 people surveyed anticipate higher corn prices next week and 10 were bearish, while 14 of 25 said soybeans will climb and six predicted a drop. Corn jumped 16 percent to $7.5275 a bushel in Chicago this year as soybeans rallied 29 percent to $15.64 a bushel. Both crops reached all- time highs in the past two months as the worst U.S. drought in a half century damaged crops.
The S&P GSCI gauge of raw materials entered a bull market as it climbed 24 percent from this year’s lowest close on June 21 through Sept. 14. The index dropped about 5.4 percent since then. The LME Index of six industrial metals advanced 10 percent last month, the most since January. International Monetary Fund Managing Director Christine Lagarde said Sept. 24 that global growth may be “a bit weaker” than the Washington-based group forecast in July.
“Higher prices are very hard to justify given the weak economic outlook we currently see,” said Ole Hansen, the head of commodity strategy at Saxo Bank A/S in Copenhagen. “Precious metals will be supported while industrial metals, the star performers in recent weeks, should find further upside difficult to achieve given these circumstances.”
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