Gold bulls strongest since August as funds retreat, analysts expect prices to rise next week

LONDON: Gold traders are the most bullish in four months as US lawmakers near a deadline for budget talks, at a time when hedge funds are cutting bets on higher prices. Fifteen of 19 analysts surveyed by Bloomberg expect prices to rise next week and one was bearish. A further three were neutral, making the proportion of bulls the highest since August 24.


Investors bought 60% more this year through gold-backed exchange-traded products compared with 2011, boosting holdings to a record on December 20 and which are now valued at $140.5 billion, data compiled by Bloomberg show.

Bullion is headed for a 12th consecutive annual gain, the longest run in at least nine decades, as central banks from Europe to China pledge more steps to spur economic growth. Hedge funds that were the most bullish in 13 months in October have since pared wagers by 43% as lawmakers failed to agree on a deal to avert more than $600 billion of automatic tax increases and spending cuts scheduled to start next month.

“The problems we’ve seen over the last year haven’t disappeared,” said Thorsten Proettel, a commodities analyst at Landesbank Baden Wuerttemberg in Stuttgart, Germany. “There is still lots of potential for trouble in the world and that is a good reason for people to stay in gold or buy more.”

The metal advanced 5.9% to $1,656.19 an ounce in London this year, even after heading for a third consecutive monthly drop.



The Standard & Poor’s GSCI gauge of 24 commodities dropped less than 0.1% and the MSCI All-Country World Index of equities climbed 13%. Treasuries returned 2.3%, a Bank of America index shows.

The Federal Reserve said December 12 it would buy $45 billion of Treasury securities a month from January, adding to $40 billion a month of existing mortgage-debt purchases. Gold rose 70% as the Fed bought $2.3 trillion of debt in two rounds of monetary easing from December 2008 through June 2011. The European Central Bank, Bank of Japan and China have all pledged to do more to bolster their economies.

Investors buying bullion as a hedge against inflation and a weaker dollar generally earn returns only through price gains. The US Dollar Index, a measure against six currencies, is headed for the first annual drop in three years. As Europe still contends with a three-year debt crisis, US Treasury Secretary Timothy F Geithner said there’s “significant uncertainty” around tax and spending policies, according to a letter to congressional leaders December 26.

ETP holdings gained 274.9 tonne this year and reached a record 2,632.5 tonne on December 20, equal to almost a year of mine production, data compiled by Bloomberg and Barclays show. Nations from Brazil to Iraq to Russia are buying metal to add to reserves. Options traders are also bullish, with the 13 most widely held contracts conferring the right to buy at prices from $1,750 to $2,700 from January to November, Comex data show.

Speculators are becoming less positive, reducing their net- long position to 112,421 futures and options in the week to December 18, the least since August, US Commodity Futures Trading Commission data show. Hedge funds’ bets on a rally this year were on average 28% lower than in 2011. There are signs that physical demand is slowing, with US Mint sales of American Eagle gold coins at 69,500 ounces so far this month, 49% less than the November total, data on its website show. The mint’s sales are down 25% this year.

While prices averaged a record $1,668 this year, they’re yet to beat the all-time high of $1,921.15 set in September 2011. Gold will probably peak next year because of improving US growth, even as the Fed expands stimulus, Goldman Sachs Group said in a December 5 report. It still expects an average of $1,750 in 2014. The drop of 8.9% since October 5 pushed gold below its 200-day moving average last week for the first time since August.