Gold Traders Most Bullish Since ’04 on Debt Crisis: Commodities

Gold traders and analysts are the most bullish in at least seven years as investors are accumulating gold at the fastest pace since August in an effort to protect their wealth and assets from the worsening European debt crisis.

By Nicholas Larkin
November 11, 2011, 10:00 AM EST
Business Week

Nov. 11 (Bloomberg) -- Gold traders and analysts are the most bullish in at least seven years as investors accumulate metal at the fastest pace since August to protect their wealth from a widening European debt crisis.

Twenty-one of 22 surveyed by Bloomberg expect bullion to rise on the Comex in New York next week, the third consecutive increase and the highest proportion in data going back to April 2004. Holdings in exchange-traded products backed by gold rose 27.5 metric tons this week, within 1 percent of the record set almost three months ago, data compiled by Bloomberg show.

Gold exceeded $1,800 an ounce for the first time in seven weeks on Nov. 8 and hedge funds are holding their biggest bet on higher prices since mid-September, Commodity Futures Trading Commission data show. The metal is rebounding after tumbling as much as 20 percent in three weeks in September on demand for what are perceived as the safest assets. Almost $9 trillion was wiped off the value of global equities since May and yields on Italian and Greek bonds rose to euro-era records this week.

“Throughout history gold has protected people from the sort of turmoil that we’re seeing,” said Mark O’Byrne, the Dublin-based executive director of GoldCore Ltd., a brokerage that sells everything from quarter-ounce British Sovereigns to 400-ounce bars. It’s “an important thing to own when there is this sort of volatility in stock markets and concern about currency devaluations.”

Gold climbed 24 percent to $1,768.50 this year, heading for an 11th consecutive annual advance. It’s the third-best performer behind gas oil and heating oil in the Standard & Poor’s GSCI Index of 24 commodities, which rose 4.9 percent. The MSCI All-Country World Index of equities retreated 8.5 percent and Treasuries returned 8.6 percent, according to a Bank of America Corp. index.

Investor Concern

The gold survey has forecast prices accurately in 223 of 387 weeks, or 58 percent of the time.

While gold is benefiting from mounting investor concern that European nations will default on their debt, other commodities may drop because slower growth will curb demand for raw materials. Traders expect copper, raw sugar and soybeans to decline next week and are equally divided on corn, separate Bloomberg surveys showed.

The 27.5 tons of gold added to ETPs this week is the most since Aug. 19 and investors bought 40.9 tons this month, the most since July. Combined holdings of 2,312.1 tons are now valued at $131.5 billion and exceed the reserves of all but four central banks, data compiled by Bloomberg show. The record of 2,330 tons was set Aug. 18.

All-Time High

Money managers raised their combined net-long position in U.S. futures and options by 6.8 percent to 148,279 contracts in the week ended Nov. 1, CFTC data show. Wagers were a record 253,653 contracts in August, a month before prices climbed to an all-time high of $1,923.70.

Prices slumped in September as the decline in equity markets obliged some investors to sell their bullion to cover those losses. Global stocks slipped to the lowest level in almost three weeks yesterday.

“The major risk is that a sharp decline in global stock markets will lead to renewed margin calls and fund liquidations,” said Adrian Day, president of Adrian Day Asset Management in Annapolis, Maryland. That may prompt “many managers to sell gold, a highly liquid asset.”

Gold may reach $1,950 by the end of the first quarter, according to the median estimate of eight of the 10 most- accurate forecasters tracked by Bloomberg over the past two years. The survey was carried out at the end of October.

Technical Charts

Technical indicators suggest the rally that began in September has further to go. While gold jumped 15 percent since reaching an 11-week low Sept. 26, its 14-day relative-strength index is at 57, below the level of 70 that indicates to some who study technical charts that the metal is poised to drop.

Gold priced in euros is doing even better, rising 4.4 percent this month compared with a 2.5 percent gain for dollar- denominated bullion. Dennis Gartman, the Suffolk, Virginia-based economist and editor of the Gartman Letter, owns gold priced in euros and wrote yesterday that it reduces volatility.

Commodities as measured by the S&P GSCI gauge are heading for their weakest performance since 2008. Demand for everything from crude oil to aluminum to wheat contracted that year as nations contended with the worst global recession since World War II. The International Monetary Fund is anticipating no return to that slump, forecasting economic growth of 4 percent in 2012, unchanged from this year.

Eleven of 21 traders and analysts surveyed by Bloomberg expect copper to fall next week. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, declined 21 percent to $7,540 a ton this year.

Nine Surveyed

Raw-sugar futures dropped 12 percent since reaching a one- month high on Oct. 17 to 24.98 cents a pound on ICE Futures U.S. in New York. Prices declined 22 percent this year. Six of nine people surveyed expect prices to drop next week.

Eighteen of 30 surveyed anticipate declines in soybeans. Out of 29 corn traders and analysts, 11 said prices will rise and the same amount predicted a retreat. Corn increased 2.7 percent to $6.46 a bushel in Chicago this year, while soybeans fell 16 percent to $11.7175 a bushel.

“At the moment, it seems that everything is dependent on the sovereign debt crisis in the euro zone,” said Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt. “If it’s escalating we will probably see much lower commodity prices in general. Gold should still be well supported.”

--With assistance from Agnieszka Troszkiewicz, Isis Almeida and Tony C. Dreibus in London, Jae Hur in Tokyo, Helen Sun in Shanghai, Luzi Ann Javier and Chanyaporn Chanjaroen in Singapore, Sungwoo Park in Seoul, Phoebe Sedgman in Melbourne, Jeff Wilson in Chicago and Marvin Perez in New York. Editors: Stuart Wallace, James Poole

To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net

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