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Gold bulls strengthen on outlook

Gold rose 2.9% to $1,612.60 an ounce on the Comex in New York this year, extending 11 consecutive annual gains

Image Credit: AFP
A jewellery shop in Kuala Lumpur. Gold buying should reach 250 tonnes this year and 150tonnes in 2013, Barclays Plc predicts.
Gulf News

New York: Gold traders are the most bullish in five weeks as investors expanded their bullion holdings near a record on mounting speculation that central banks will have to do more to bolster economic growth.

Fifteen of 30 analysts surveyed by Bloomberg said they expect prices to rise next week and eight were bearish. A further seven were neutral, making the proportion of bulls the highest since July 6. Investors bought about $850 million of gold through exchange-traded products this month, taking the total of 2,411.7 metric tonnes yesterday to within 0.1 per cent of the all-time high set July 5, data compiled by Bloomberg show.

China’s industrial-production growth weakened in July and US and European manufacturing contracted. The Federal Reserve pledged to do more if needed on August 1 and the European Central Bank promised last month to do “whatever it takes” to preserve the euro. Lower interest rates increase the allure of gold, which generally earns investors returns only through price gains. Bullion rose 70 per cent as the Fed bought $2.3 trillion of debt in two rounds of quantitative easing through June 2011.

“More stimulus or money printing is almost certain given the levels of debt out there which is slowing down economic growth,” said Mark O’Byrne, the executive director of Dublin- based GoldCore Ltd., a brokerage that sells and stores everything from quarter-ounce British Sovereigns to 400-ounce bars. “That should be supportive of gold prices.”

Gold’s Rally

Gold rose 2.9 per cent to $1,612.60 an ounce on the Comex in New York this year, extending 11 consecutive annual gains. That compares with a 2 per cent gain in the Standard & Poor’s GSCI gauge of 24 commodities and a 7.6 per cent advance in the MSCI All-Country World Index of equities. Treasuries returned 1.9 per cent, a Bank of America Corp. index shows.

The 16.3 tonnes purchased through ETPs this month increased the value of total holdings to about $125.4 billion. Investors bought 55 tonnes since the start of January. Buying should reach 250 tonnes this year and 150 tonnes in 2013, Barclays Plc predicts.

US manufacturing unexpectedly contracted in July for a second month, the Institute for Supply Management’s factory index showed August. 1. The Fed has held interest rates at a record low since 2008. Boston Fed President Eric Rosengren said in an August. 7 interview with CNBC that the central bank should pursue an “open-ended” easing program of “substantial magnitude.”

Growth Forecast

The International Monetary Fund cut its 2013 global growth forecast to 3.9 per cent on July 16, from an April projection of 4.1 per cent, citing Europe’s debt crisis. The euro-area’s economy will contract 0.3 per cent this year, from a previous estimate of 0.2 per cent, according to an ECB economist survey published in the central bank’s monthly bulletin yesterday.

Some investors have favoured the dollar and government bonds as a store of value instead of gold. The US Dollar Index, a measure against six major trading partners, reached a two-year high July 24. The 30-week correlation coefficient between the dollar and bullion is at -0.61, from -0.24 in September, with a figure of -1 meaning the two move inversely. Germany, the U.K. and France sold debt at the lowest yields ever in July.

Hedge funds cut bets on higher prices by 51 per cent in the past five months, US Commodity Futures Trading Commission data show. While the net-long position rose 35 per cent in the week ended July 31, it is still near the lowest since 2008. Volumes traded on the Comex slipped to a 17-month low in July, bourse data show. Open interest, or contracts outstanding, tumbled 26 per cent since September, when gold reached a record $1,923.70.

Coin Demand

Demand for gold coins is weakening, with sales of American Eagles by the US Mint dropping 49 per cent to 30,500 ounces last month, the lowest since April. The mint sold 4,000 ounces so far in August, data on its website show.

While gold is still trading 16 per cent below the September record, it has averaged about $1,643 this year. Should that be sustained through the end of December, it would be the most ever. Goldman Sachs Group Inc is predicting a price of $1,785 in three months.

Food Prices

World food prices surged the most since 2009 in July as droughts damaged crops from the US to Russia, according to a United Nations’ Food & Agriculture Organization index. Drought covers almost 63 per cent of the contiguous US, which suffered the hottest month on record in July, the National Oceanic and Atmospheric Administration said August. 8.