By Nicholas Larkin, Copyright 2013 Bloomberg
Gold traders are the most bearish in more than a year on mounting speculation that improving economic growth from the U.S. to China will curb demand for this year’s worst-performing precious metal.
Twenty analysts surveyed by Bloomberg this week expect prices to fall next week, while 11 were bullish and three were neutral, making the proportion of bears the highest since Dec. 30, 2011. Hedge funds cut bets on higher prices by 56 percent since October and are approaching their least bullish stance on gold since August, government data show. The metal fell to a five-month low today, and billionaire investors George Soros and Louis Moore Bacon reported yesterday that they had reduced stakes in exchange-traded products backed by gold.
First-time jobless claims in the U.S. decreased more than estimated last week, while a Chinese government-backed survey showed manufacturing expanded in January. Growth will accelerate in the world’s two largest economies in coming quarters, according to more than 100 economists surveyed by Bloomberg. Investors cut record bullion holdings in exchange-traded products this year and added to funds backed by other precious metals that are used more in industry.
"The global economic recovery is on track," said Andrey Kryuchenkov, a commodity strategist in London at VTB Capital, a unit of Russia’s second-largest lender. "The persistently decent macro data is denying gold its usual safe-haven properties. You can get better returns elsewhere."
Gold prices that rallied the past 12 years will probably peak in 2013, or already have, according to Goldman Sachs Group Inc. and Credit Suisse Group AG.
The metal fell 4.4 percent to $1,602.90 an ounce in New York this year, and reached $1,596.70 today, the lowest since Aug. 15. Gold climbed 7.1 percent last year in the longest annual rally in at least nine decades. The Standard & Poor’s GSCI gauge of 24 commodities is up 4.2 percent this year and the MSCI All-Country World Index of equities gained 4.7 percent. Treasuries lost 0.9 percent, a Bank of America Corp. index shows.
Gold’s drop compares with a 1.2 percent loss for silver this year. Platinum and palladium rose at least 6.8 percent on concern mine supply will fall as demand increases. An ounce of platinum bought as much as 1.054 ounces of gold yesterday, the most in 17 months, data compiled by Bloomberg show. Industrial usage accounts for about 10 percent of bullion consumption, compared with more than half for the other three metals.
Gold ETP assets reached a record 2,632.5 metric tons on Dec. 20 as policy makers from the Federal Reserve to the Bank of Japan pledged more action to stimulate growth. Holdings are down 0.9 percent this year, while silver products rose 3 percent, platinum 9.9 percent and palladium 13 percent, data compiled by Bloomberg show.
Soros Fund Management reduced its investment in the SPDR Gold Trust, the biggest fund backed by the metal, by 55 percent to 600,000 shares as of Dec. 31 from three months earlier, a U.S. Securities and Exchange Commission filing showed yesterday. Bacon’s Moore Capital Management LP sold its entire stake in the SPDR fund and lowered holdings in the Sprott Physical Gold Trust. Paulson & Co., the largest investor in SPDR, kept its stake at 21.8 million shares, a filing showed.
Bullion is unlikely to return to its September 2011 high of $1,921.15 because of accelerating U.S. growth and contained inflation, Credit Suisse said in a Feb. 1 report. Goldman forecast in a Jan. 18 report that gold will climb to $1,825 in three months and peak this year.
U.S. economic growth will accelerate every quarter this year to a median 2.7 percent in the final three months, according to 87 estimates compiled by Bloomberg. China’s expansion will pick up to a median 8.3 percent in the third quarter from 8.1 percent in the first, according to 34 estimates compiled by Bloomberg.
Even as the recession in Europe deepened more than economists forecast last quarter and Japan’s economy shrank, the International Monetary Fund predicts global growth will climb to 3.5 percent this year from 3.2 percent in 2012.
"There’s a lack of imminent financial disasters at the moment," said John Meyer, an analyst at SP Angel Corporate Finance LLP, a broker and adviser in London. "Investors are going for a more risk-on approach and that tends to lead them away from gold."
Gold generally earns returns only through price gains and some investors buy it as a hedge against inflation and currency declines. While consumer-price gains are below the Fed’s 2 percent target, inflation expectations measured by the break- even rate for five-year Treasury Inflation Protected Securities rose 13 percent this year and reached a four-month high Feb. 6.
Finance ministers from the Group of 20 gather this weekend in Moscow amid concern of a fresh "currency war" as countries weaken their exchange rates to make exports more competitive.
"The monetary backdrop is still extremely positive for gold, so we would be accumulating here," said Adrian Day, the president of Adrian Day Asset Management in Annapolis, Maryland.
Buying also may pick up as China’s markets open after this week’s New Year holiday. China accounted for about 25 percent of consumer gold demand last year and narrowed the gap between top buyer India to the smallest ever, the London-based World Gold Council said yesterday. The group said consumption from both countries may rise at least 11 percent in 2013.
Central banks from Brazil to Russia are buying more gold to diversify from currency holdings. They added 534.6 tons to reserves last year, 17 percent more than in 2011 and the most since 1964, the council said yesterday. Those purchases helped stem the first annual drop in total demand in three years, as investment slid 9.8 percent and jewelry demand fell 3.2 percent.
Money managers held a net-long position of 86,926 futures and options in the week to Feb. 5, U.S. Commodity Futures Trading Commission data show. That was 5.9 percent more than the previous week, when wagers on gains were the lowest since Aug. 14.
Gold’s 9.7 percent slump since Oct. 4 took prices below the 200-day moving average, indicating to some who study technical charts that more declines may follow. Prices are down 2.8 percent in February, and a fifth straight monthly drop would be the worst run since 1997. Gold fell in March in six of the last nine years, according to data compiled by Bloomberg.
In other commodities, 10 of 17 traders and analysts surveyed expect copper to rise next week, five were bearish and two were neutral. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, rose 4.1 percent to $8,254 a ton this year.
Eight of 16 people surveyed expect raw sugar to gain next week and seven predict a drop. The commodity slid 8.2 percent to 17.91 cents a pound on ICE Futures U.S. in New York this year.
Sixteen of 26 of those surveyed anticipate a rise in corn prices next week and seven said the grain will drop, while 17 said soybeans will advance and six expect lower prices. Sixteen of 26 traders predicted higher wheat and six were bearish. Corn added 0.4 percent to $7.0075 a bushel this year in Chicago as soybeans rose 0.5 percent to $14.17 a bushel. Wheat is down 3.7 percent at $7.4925 a bushel.
The S&P GSCI gauge of raw materials climbed to the highest since September two days ago and is up 0.2 percent this week. Speculators increased bullish bets across 18 U.S. commodities for a fourth week in the period to Feb. 5, CFTC data show.
While improving growth may curb demand for gold as a protection of wealth, other commodities used in industry and food products may benefit. Usage will outpace supply this year in tin, platinum and palladium, while corn, wheat and cocoa will have shortages in the 2012-13 season, according to estimates from Barclays Plc and Rabobank International.
"The economic activity in China and U.S. are telling us that commodities are poised to rise," said Robert Keck, president of Princeton-based 6800 Capital LLC, which manages about $650 million. "While Europe maybe slow, overall the global economy is growing."