Bloomberg News

Gold Traders Split on Two-Year Anniversary of Peak: Commodities

September 06, 2013

Gold Traders Split on Two-Year Anniversary of Peak

Gold is set for its first decline in 13 years after some investors lost faith in the metal as a store of value. Photographer: Alessia Pierdomenico/Bloomberg

Gold traders are divided on the outlook for prices next week, weighing signs of an improving U.S. economy against the threat of a military attack on Syria. Two years after bullion set a record, the majority said a new peak won’t be reached in the next 24 months.

Thirteen analysts surveyed by Bloomberg expect prices to rise next week, the same number were bearish and five were neutral. Gold slumped 28 percent since it reached an all-time high of $1,921.15 an ounce on Sept. 6, 2011. Eighteen people surveyed said the metal won’t exceed that level in the next two years and 11 predicted another record.

Gold is set for its first decline in 13 years after some investors lost faith in the metal as a store of value. Bullion rallied 17 percent from a 34-month low in June as the slump stoked demand for jewelry and coins and western nations debated attacking Syria after accusations the government used chemical weapons. An accelerating U.S. economy increased speculation the Federal Reserve will buy fewer bonds to stimulate growth, diminishing demand for gold as a hedge against inflation.

“As long as we’re speculating on when any possible military intervention might take place, that could be supportive for gold as a safe haven,” said Jonathan Butler, a precious metals strategist at Mitsubishi Corp. International (Europe) Plc in London. Fed bond buying “will be scaled back in the remainder of this year. If that were to take place, there’s going to be some downside for gold,” he said.

Money Printing

The metal fell 17 percent to $1,386.84 in London this year, tumbling into a bear market in April. The Standard & Poor’s GSCI gauge of 24 commodities rose 2.4 percent and the MSCI All-Country World Index of equities gained 9.5 percent. The Bloomberg U.S. Treasury Bond Index lost 4.3 percent.

Bullion set a record in 2011 as investors judged that unprecedented money printing by central banks would debase financial assets. While the Fed’s debt-buying program swelled its balance sheet by 28 percent since then, gold has been the sixth-worst performing commodity in the S&P GSCI gauge as consumer price increases failed to accelerate.

John Paulson, the billionaire hedge fund manager and biggest investor (GLD:US) in the SPDR Gold Trust, the largest gold-backed exchange-traded product, cut his stake in the fund by 53 percent last quarter, a government filing showed. Holdings across gold ETPs retreated 26 percent this year, erasing $54.7 billion from their combined value.

Hedge Funds

Gold reached a three-month high last week and hedge funds’ bullish bets were the highest since January as U.S. President Barack Obama sought approval before ordering action against Syria, whose government has been accused of using chemical weapons against its own people. A Senate committee voted Sept. 4 to authorize a limited military operation in Syria, the first step toward congressional endorsement.

Hedge funds and other large speculators increased their net-long position by 34 percent to 97,902 contracts in the week through Aug. 27, as bearish bets tumbled 37 percent, the biggest drop in 11 months, U.S. Commodity Futures Trading Commission data show. Net-bullish wagers tripled since the end of June.

The metal rose 5.3 percent last month and 7.3 percent in July, the first back-to-back monthly gains since September. The rally above $1,400 last month slowed purchases, along with near-record prices in India, the biggest buyer, Standard Bank Group Ltd. said in a Sept. 4 report. India’s government has sought to cut bullion imports to combat a record current-account deficit.

U.S. Mint

The U.S. Mint sold 11,500 ounces of American Eagle gold coins in August, down from as much as 209,500 ounces in April. One-month gold lease rates in London, the cost of borrowing the metal, fell to a two-month low on Sept. 3, signaling increasing availability of metal.

Gold rose 70 percent from December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system by buying debt. Policy makers have said they will support stimulus cuts this year if the economy improves. Reports released since last week showed the U.S. expanded more than estimated in the second quarter and a gauge of manufacturing in the nation climbed to a two-year high. U.S. payrolls rose less than anticipated in August, a Labor Department report showed today.

Officials will reduce the $85 billion of monthly debt purchases at their Sept. 17-18 meeting, according to 65 percent of economists in an Aug. 9-13 Bloomberg poll. Credit Suisse Group AG forecasts gold will average $1,180 next year and Societe Generale SA projects $1,150. Bank of America Corp. is more bullish, expecting a 2014 average of $1,563.

Predicted Losses

Six of 12 people surveyed expect raw sugar to fall next week and three were bullish. The commodity slid 14 percent to 16.80 cents a pound on ICE Futures U.S. in New York this year.

Nineteen of 27 surveyed anticipate lower corn prices and seven said the grain will rise, while eighteen of 28 said soybeans will drop and 10 expect higher prices. Fourteen predicted losses in wheat and six were bullish. Corn fell 34 percent to $4.63 a bushel this year in Chicago. Soybeans lost 3.3 percent to $13.635 a bushel, as wheat dropped 17 percent to $6.435 a bushel.

Seven traders and analysts surveyed expect copper to rise next week, seven were bearish and eight neutral. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, fell 9.7 percent to $7,160 a metric ton this year.

The S&P GSCI gauge of raw materials climbed to a six-month high on Aug. 28 after a rally in oil futures which make up almost half of the index. A measure of the six main metals traded on the LME fell 5.3 percent since reaching a two-month high on Aug. 16.

“Commodities should be supported by better economic data because it means better demand,” said Robin Bhar, an analyst at Societe Generale in London. “It’s more sentiment driven that if the Fed does remove some stimulus, that’s seen as negative in a way. Liquidity is a lifeblood of financial markets and arguably a lifeblood of commodity markets.”

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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Companies Mentioned

  • GLD
    (SPDR Gold Shares)
    • $123.86 USD
    • -0.14
    • -0.11%
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