Tuesday, 23 October 2012 07:51

Gold price falls 1% to six-week low

LONDON — Gold prices fell 1% on Tuesday as the dollar firmed against the euro and stock markets fell, with appetite for assets seen as more risky hurt by a credit downgrade of five Spanish regions and a raft of soft corporate earnings reports.

Soft results statements from the likes of Caterpillar, General Electric and Alfa Laval have undermined stock markets, while Moody’s decision to cut its ratings on regions such as Catalonia pushed the eurozone debt crisis into the spotlight.

Pressure on gold from weakness in stocks helped push prices to six-week lows at $1,711.40 an ounce, putting it on track to decline in October for the first month in five.

Spot gold was down 0.9% at $1,713.40 an ounce at 10.09am GMT, while US gold futures for December delivery were down $11.50 an ounce at $1,714.80.

The metal has struggled for traction after twice failing to break through the $1,800 level. It hit a 2012 high earlier this month at $1,795.69 after the Federal Reserve unveiled a fresh round of quantitative easing measures to stimulate growth.

"You’ve had QE (quantitative easing) priced in and what we’re seeing now is a bit of a retracement following that," Deutsche Bank analyst Daniel Brebner said. "We have a pause in monetary policy action — it’s very unlikely we’re going to see anything in the US and China while there is political transition.

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Gold rose to the highest level since March in New York as speculation that the European Central Bank will announce unlimited purchases of government bonds to defuse the region’s debt crisis boosted the euro.

The euro traded near a two-month high against the dollar after two central bank officials said that ECB President Mario Draghi will announce the purchases at a policy-setting meeting today. The bond-buying program will be sterilized to assuage concerns about printing money, according to the two. Gold tends to trade inversely to the U.S. currency.

December-delivery gold gained as much as 0.6 percent to $1,703.90 an ounce on the Comex in New York and was at $1,703.80. The price has risen 8.7 percent this year. Photographer: Ron D'Raine/Bloomberg

“The ECB action today is going to be beneficial for gold,” said Walter de Wet, the head of commodities research at Standard Bank Plc.

December-delivery gold gained 1 percent to $1,711.20 an ounce by 7:30 a.m. on the Comex in New York. Bullion rallied to $1,714.90 earlier, the highest level since March 12. Spot gold advanced 0.9 percent to $1,708.48 an ounce in London, rising above $1,700 for the first time since March 13.

Gold will be at $1,840 an ounce by the end of 2012, Jeffrey Currie, head of commodities research at Goldman Sachs Group Inc., said in a Bloomberg Television interview today.

Policy makers’ stimulus is a “critical and direct driver of the outlook for gold,” Currie said. “In terms of the FOMC pursuing the QE3 it will be critical in putting more upward pressure on gold prices,” he said, referring to the U.S. Federal Open Market Committee and speculation about a third round of so-called quantitative easing, or asset purchases.

The ECB has been at the forefront of fighting the crisis, which has so far pushed five countries into bailouts and driven the 17-nation euro economy to the brink of recession. In July, Draghi said he would do “whatever it takes” to defend the euro.

ETP Holdings

Assets in exchange-traded products expanded to a record 2,470.7 metric tons yesterday, data compiled by Bloomberg show. Bullion is up 9.3 percent this year. Gold at the morning “fixing,” used by some mining companies to sell output, rose to $1,708.50 an ounce in London from $1,690 yesterday afternoon.

Platinum for October delivery rose for a fourth day, climbing as much as 1 percent to $1,591.50 an ounce, the highest price since April 19, and was last at $1,584.30.

Investors are buying platinum at the fastest pace since 2010 after disruptions at mines in South Africa, the largest producer, caused the biggest loss of supply in at least seven years. Purchases through exchange-traded products were the most in 20 months in August, data compiled by Bloomberg show.

Silver for December delivery rose as much as 1.8 percent to $32.92 an ounce, the highest level since April 3, before trading at $32.92. Palladium for December delivery was little changed at $647.10 an ounce.

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Tuesday, 31 July 2012 23:22

Gold Forecasters Splitting After Rout

The only three analysts to correctly predict gold’s biggest quarterly slump in four years are now split, reflecting investors’ diverging views on the probability of central banks doing more to shore up growth.

Justin Smirk of Westpac Banking Corp., the most accurate of 20 analysts tracked by Bloomberg in the second quarter, says prices will keep dropping. Eugen Weinberg of Commerzbank AG and Nick Trevethan at ANZ Banking Group Ltd. predict a record within a year. Hedge funds and other speculators are the least bullish since 2008, even with investor holdings of physical bullion in exchange-traded products close to an all-time high, government data and figures compiled by Bloomberg show.

While gold has rallied since tumbling to within 1 percent of a bear market in May, it’s still 16 percent below the record $1,923.70 an ounce reached on Sept. 6. Investors have favored sovereign debt and the dollar to protect their wealth as economic growth slows, driving yields to record lows and the U.S. currency to a two-year high. Central banks from Europe to China cut interest rates this month, and the Federal Reserve said it was prepared to act to boost the recovery.

“There is not much interest in gold right now given the fears of economic slowdown globally,” said Michael Cuggino, who manages $17 billion of assets at Permanent Portfolio Funds in San Francisco, with about 20 percent of his investments in gold. “The velocity of the money has not yet entered the system, but one has to buy gold as it is a long-term play and will keep rising as you need insurance against future inflation.”

Broad Market

Futures fell 4 percent from April to June on the Comex in New York, the most since the third quarter of 2008. The U.S. Dollar Index advanced 3.3 percent and bonds of all types returned an average of 1.6 percent, according to Bank of America Merrill Lynch’s Global Broad Market Index.

Gold is now 3.1 percent higher for the year at $1,614.60. The Standard & Poor’s GSCI Spot Index of 24 commodities fell 1.4 percent, the MSCI All-Country World Index of equities added 5.5 percent, and the Dollar Index, a measure against six trading partners, advanced 3.1 percent. Treasuries returned 2.7 percent, a Bank of America gauge shows. The yield on the benchmark 10- year security fell to a record low of 1.379 percent on July 25, Bloomberg Trader data show.

Bullion has appreciated for 11 consecutive years, with prices surging sevenfold as investors sought a hedge against everything from accelerating inflation to Europe’s debt crisis to slumping equities. The metal rose about 70 percent as the Federal Reserve bought $2.3 trillion of debt in two rounds of so-called quantitative easing from December 2008 through June 2011. Gold’s year-to-date gain is the smallest for the period since 2005, a sign that investor demand may be waning.

Quantitative Easing

“It is not the ultimate safe-haven, and the steep fall last year and the performance this year showed that people preferred the dollar,” said Smirk, a Sydney-based commodity analyst with Westpac. “While quantitative easing may bring in some buying, it’s unlikely to go back to earlier highs.”

Hedge funds cut their net-long position, or bets on higher prices, by 72 percent from a record in August. Their holdings fell to a 43-month low of 71,129 futures and options on July 24, according to the U.S. Commodity Futures Trading Commission. The number of outstanding contracts on the Comex slumped 18 percent in the past year, exchange data show.

While holdings in ETPs rose fourfold in the past five years and now exceed the reserves of all but four of the world’s central banks, they have gained just 1.4 percent to 2,390.6 metric tons this year, data compiled by Bloomberg show.

Trade Federation

Demand in India, the biggest buyer, is poised to contract for a second year, the World Gold Council said July 16. The All India Gems & Jewellery Trade Federation predicted in May that purchases will drop 30 percent this year, in part because of a strike by jewelers in March and April. The London-based council cut its 2012 forecast for Chinese demand this month to 870 tons from a May estimate of as much as 1,000 tons. The difference is equal to more than two weeks of global mine production.

Treasuries held in custody by the Federal Reserve for other central banks rose $138.5 billion to a record $2.83 trillion this year, government data show. The increase of 5.1 percent compares with a 2.8 percent expansion in 2011. Germany, the U.K. and France sold debt at the lowest yields ever in July.

Global Growth

Some investors are still betting on a gold rally because central banks will have to do more to bolster growth, increasing the threat of inflation. The International Monetary Fund cut its 2013 global growth forecast to 3.9 percent from 4.1 percent on July 16, saying that Europe’s debt crisis is slowing emerging markets from China to India. It also predicted that year-end consumer prices in advanced economies would increase by 1.65 percent next year, from 1.81 percent in 2012.

“People are waiting for signals for higher inflation,” Mihir Worah, who manages Pacific Investment Management Co.’s $22 billion Commodity Real Return Strategy Fund from Newport Beach, California, said on July 23. “There is a decent possibility that some form of easing will be announced in the next few months, and then prices will start rising.”

Gold will average $1,669 this quarter, up from $1,612 in the previous three months, according to the median of 20 analysts estimates compiled by Bloomberg. Four now expect prices to keep dropping. Smirk predicts $1,490, Alexandra Knight of National Australia Bank Ltd. $1,550, David Wilson of Citigroup Inc. $1,610 and Arne Lohmann Rasmussen of Danske Bank A/S $1,600.

Central Banks

Bullion rose to a five-week high of $1,633.30 on July 27. European Central Bank President Mario Draghi said a day earlier that policy makers will do whatever is needed to save the euro. There is a 90 percent chance of Greece leaving the euro in the next 12 to 18 months, Citigroup Inc. said on July 25.

“The low interest-rate regime, central-bank demand and further stimulus should create a fertile ground for gold bulls,” said ANZ’s Trevethan, a Singapore-based senior commodities strategist. Gold generally earns investors returns only through price gains, making it more attractive as borrowing costs decline.

The ECB cut its benchmark interest rate on July 5 to a record 0.75 percent. Fed officials are scheduled to announce an interest-rate decision at the end of a two-day meeting tomorrow. The central bank has kept borrowing costs at the lowest ever since 2008. China reduced interest rates in June and July.

“We will see strong hands entering the market via more central-bank buying, physically-backed exchange-traded products and purchases of bars” of bullion, said Weinberg, the head of commodity research at Commerzbank in Frankfurt.

Bank Reserves

Central banks and the IMF are the largest bullion owners with 29,500 tons at the end of last year, or 17 percent of all mined metal, World Gold Council data show. Central banks have been net buyers for two straight years, the council said. Purchases this year will probably exceed the 456 tons added in 2011, the WGC estimates.

“Gold has been trapped in a range for several months,” said Michael Shaoul, the chairman of Marketfield Asset Management in New York, which oversees more than $2 billion of assets. “It has not shown much of a response to the promise of easing by the ECB, but yet you can’t call it weak because it finds some support every time there is a huge sell-off.”

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