Gold Traders More Bullish as ETP Hoard Sets Record

Friday, 26 October 2012
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Published in Gold Investing

Central banks from Europe to China to the U.S. have pledged to do more to boost economies. The yen reached a four-month low versus the dollar this week on speculation the Bank of Japan will further expand stimulus and the Federal Reserve said it plans to continue buying bonds. 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.

“The whole economic situation is going to get worse rather than better,” said Thorsten Polleit, chief economist at Degussa Goldhandel GmbH, a precious metal trading and investment company in Frankfurt. “Paper currencies have already lost their function as a store of value and it’s getting worse. People are increasingly putting their savings into precious metals.”
Gold Prices


Gold rose 9.5 percent to $1,712.95 an ounce in London this year, advancing for a 12th consecutive year, the longest winning streak in at least nine decades. October’s average of $1,749 is set to be the third-highest month ever. The Standard & Poor’s GSCI gauge of 24 commodities lost 1.2 percent since the start of January and the MSCI All-Country World Index of equities climbed 9.5 percent. Treasuries returned 1.4 percent, a Bank of America Corp. index shows.

The BOJ, which holds a policy meeting Oct. 30, will consider raising its asset-purchase program by 10 trillion yen ($125 billion) to 90 trillion yen, the Nikkei newspaper reported yesterday. The Fed said Oct. 24 it will maintain $40 billion in monthly purchases of mortgage debt and probably hold interest rates near zero until mid-2015. The European Central Bank has said it is ready to buy bonds of indebted nations and China approved a $158 billion subways-to-roads construction plan.

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. Inflation expectations measured by the break-even rate for five-year Treasury Inflation Protected Securities jumped 33 percent this year and reached a 16-month high in September.
Investors Buy

Gold ETP holdings gained 7.9 percent since the end of July and now account for almost a year of mine production, according to data compiled by Bloomberg and Barclays Plc. Speculators’ wagers on a rally were the highest since August 2011 in the week to Oct. 9, CFTC data show. They cut their net-long position by 7 percent to 184,404 futures and options by Oct. 16, data show.

Gold dropped below $1,700 this week as “fatigue set in” among fund managers after they boosted bets and as prices failed to reach $1,800, said Edel Tully, an analyst at UBS AG in London. Higher prices also curbed physical demand, said Walter de Wet, an analyst at Standard Bank Plc in Johannesburg.

The U.S. Mint sold 48,500 ounces of American Eagle gold coins so far this month, 29 percent fewer than throughout September, data on its website show. This year’s sales of 530,000 ounces are down 41 percent from the same period in 2011.
Indian Demand

Gold imports by India, last year’s biggest buyer, slid to as low as 170 tons in the third quarter from 205 tons a year earlier, according to Bachhraj Bamalwa, chairman of the All India Gems & Jewellery Trade Federation. Local prices fell 5.7 percent since setting a record Sept. 13. Gold’s drop this month may spur more physical demand in Asia, Standard Bank said in an Oct. 24 report. Indian consumers usually boost purchases before the wedding season and religious festivals later this year.

Central banks have been expanding bullion reserves to diversify from currencies. Nations may add almost 500 tons this year, the London-based World Gold Council said in August. Brazil raised its gold reserves last month for the first time since December 2008 and countries from South Korea to Russia increased holdings this year, International Monetary Fund data show.

In other commodities, 15 of 30 traders and analysts surveyed expect copper to gain next week and 10 were bearish. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, climbed 2.8 percent to $7,812.25 a ton this year.
Sugar Survey

Fourteen of 20 people surveyed said raw sugar will rise next week and three expected a decline. The commodity slid 17 percent to 19.33 cents a pound since the start of January on the ICE Futures U.S. exchange in New York.

Fifteen of 28 people surveyed anticipate higher corn prices next week and five were bearish, while 17 of 29 said soybeans will climb and five predicted a drop. Corn rallied 15 percent to $7.4225 a bushel in Chicago trading this year as soybeans rose 29 percent to $15.585 a bushel. Both crops reached records since August as the worst U.S. drought in a half century hurt crops.

The GSCI gauge of raw materials erased this year’s gain three days ago after entering a bull market in the third quarter. The last annual decline was in 2008 and the index (MXWD) made annual advances in 11 of the past 13 years.

The commodity supercycle has further to go because of increasing demand from China and emerging markets, Chris Watling, chief executive officer of Longview Economics Ltd., and Dambisa Moyo, a former Goldman Sachs Group Inc. economist, said at a conference in London on Oct. 24.

“The inflation story in commodities is warranted,” said Colin O’Shea, the head of commodities at Hermes Investment Management Ltd. in London, which manages about $2.3 billion of raw-material assets. “Inflation could really happen, and happen in a big way over the course of the next few years. Historically, the primary reason for investing in commodities is diversification.”

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