Saturday, January 5, 2013

Gold Seen Rallying From Worst Streak in Eight Years: Commodities

Gold traders expect prices to rebound from the longest weekly losing streak in eight years as mounting concern that U.S. lawmakers are doing too little to control the budget deficit spurs demand for a protection of wealth.


Twenty analysts surveyed by Bloomberg expect prices to rise next week, five were bearish and a further two were neutral.

While hedge funds cut bullish bets to a four-month low last week as prices slid for a fifth week, investors are holding a near- record amount in gold-backed exchange-traded products that are now valued at $138.5 billion, data compiled by Bloomberg show.

Bullion posted its longest run of annual gains in at least nine decades as U.S. lawmakers this week passed legislation that prevented tax increases for most workers and delayed spending cuts by two months.

The International Monetary Fund says the country’s debt ceiling ought to be raised “expeditiously.” While Credit Suisse Group AG yesterday said gold will average the most ever this year, it joined Goldman Sachs Group Inc. in predicting the 12-year bull market will probably peak in 2013.

“Euphoria over the fiscal-cliff avoidance could be short lived as all problems are not solved yet,” said Frederique Dubrion, the Geneva-based president and chief investment officer of Blue Star Advisors SA, which manages metals and energy assets.

“There’s still a huge amount of debt. Gold is nobody’s liability, it’s the ultimate alternative currency.”

Gold Price

The metal fell 1.2 percent to $1,643.85 an ounce today after U.S. Federal Reserve policy makers said they’ll probably end their $85 billion of monthly bond purchases this year, according to the record of the Federal Open Market Committee’s Dec. 11-12 gathering released yesterday.

While gold rose 7.1 percent last year, it’s set for a sixth weekly loss, the worst run since May 2004.

The Standard & Poor’s GSCI gauge of 24 commodities added 0.3 percent in 2012, the MSCI All-Country World Index (MXWD) of equities rose 13 percent. Treasuries returned 2.2 percent, a Bank of America Corp. index shows.

The U.S. House of Representatives passed legislation on Jan. 1, breaking an impasse over how to prevent more than $600 billion in tax increases and spending cuts from coming into force. The so-called fiscal cliff had threatened to push the world’s largest economy into a recession.

The budget package passed by Congress won’t reduce deficits enough to avoid a sovereign-rating downgrade, Moody’s Investors Service said.

Fed Minutes

Gold will reach $2,000 this year, according to a Bloomberg survey of 49 traders and analysts last month, as investors hedge against inflation and weaker currencies. The Fed said Dec. 12 it would buy $45 billion of Treasury securities a month from January.

The yen fell to the lowest since 2010 against the dollar today after the Fed’s minutes and amid speculation the Bank of Japan (8301) will heed government calls to print more money.

Investors bought 60 percent more through gold ETPs last year compared with 2011 and now hold 11.7 metric tons below the record 2,632.5 tons set Dec. 20.

The holdings are equal to almost a year of mine production, data compiled by Bloomberg and Barclays Plc show.

Nations from Brazil to Iraq to Russia are also buying metal to add to official reserves, according to data compiled by the IMF.

While Credit Suisse forecasts a 2013 average of $1,740, it expects improved economic growth later this year to curb gold’s appeal and sees prices averaging $1,720 in 2014. Goldman’s analysts said Dec. 5 that prices will peak this year because of improving U.S. growth, even as the Fed expands stimulus.

Most Accurate

The metal will average $1,600 this year, according to Rene Hochreiter, a director of Johannesburg-based Allan Hochreiter (Pty) Ltd. and the most accurate forecaster in the London Bullion Market Association’s 2012 gold survey.

That would be 4.1 percent below last year’s all-time high average. Prices may slump to $1,600 by March, according to technical analysis by Paul Kavanaugh at FuturePath Trading LLC.

The 50-day moving average crossed below the 100-day average, indicating prices will slide 4.5 percent from yesterday’s settlement of $1,674.60 on the Comex in New York, Kavanaugh, the Chicago-based director of business development, said in a telephone interview.

Speculators cut their bullish bets by 49 percent since October and held a net-long position of 101,922 futures and options in the week to Dec. 24, the least since Aug. 14, U.S. Commodity Futures Trading Commission data show.

U.S. Mint sales of American Eagle gold coins fell 44 percent to 76,000 ounces in December and full-year sales were 25 percent lower than in 2011, data on its website show.

India’s Imports

Physical demand may slow elsewhere. India’s Finance Minister Palaniappan Chidambaram said Jan. 2 that 2011’s biggest buying nation may raise taxes on gold imports to reduce the current-account deficit.

India bought 24 percent less in the first nine months of last year as gold priced in rupees reached a record, according to the London-based World Gold Council.

Gold priced in the Indian currency rallied 10 percent last year, beating dollar-denominated bullion’s smallest annual increase in four years.

The metal surged 21 percent in yen in 2012 and reached a 32-year high this week, data compiled by Bloomberg show. In other commodities, nine of 12 traders and analysts surveyed expect copper to fall next week, two were bullish and one was neutral.

The metal for delivery in three months, the London Metal Exchange’s benchmark contract, climbed 4.4 percent last year and was at $8,092 a ton today.

Sugar Outlook

Six of 11 people surveyed expect raw sugar to gain next week and four predict a drop. The commodity traded at 18.94 cents a pound on ICE Futures U.S. yesterday after dropping 16 percent last year, its second consecutive annual decline.

Twelve of 24 people surveyed anticipate a gain in corn prices next week and 10 said the grain will drop, while 15 of 25 said soybeans will slide and seven expect rising prices. Twelve of 23 traders predicted cheaper wheat and nine were bullish.

Corn rose 8 percent last year and was at $6.84 a bushel in Chicago as soybeans traded at $13.62 a bushel after rallying 17 percent in 2012. Wheat gained 19 percent in the period and was last at $7.4575 a bushel.

The S&P GSCI gauge of commodities posted its worst annual performance since 2008 even as Fed Chairman Ben S. Bernanke and European Central Bank President Mario Draghi pledged bond purchases.

The IMF expects 3.6 percent global economic growth this year, up from 3.3 percent in 2012, with China’s expansion accelerating to 8.2 percent.The country is the biggest user of everything from copper to soybeans.

“The fiscal cliff hasn’t come out as well as everyone had hoped, but the key factor about the U.S. is that Bernanke still has the ability to continue to expand stimulus measures,” said Jeremy Baker, who manages about $830 million of assets at the Vontobel Belvista Commodity Fund in Zurich.

China is going to be supportive for industrial bulk-type commodities, and even for agricultural commodities.”

bloomberg.com

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