By Nicholas Larkin - May 11, 2012 7:01 AM GMT+0800
Gold traders are the least bullish in five weeks after the metal erased almost all of this year’s gains, as political turmoil in Europe and mounting optimism about the U.S. economy drives investors to favor the dollar.
Fourteen of 32 analysts surveyed by Bloomberg expect prices to gain next week and six were neutral, the lowest proportion since April 6. Bullion futures slid to a four-month low of $1,578.50 an ounce this week and hedge funds are making their smallest bet on a rally in about three years, Commodity Futures Trading Commission data show.
The Dollar Index, a measure against six major counterparts, rose for eight consecutive days through May 9, the longest winning streak since September 2008. Gold fell on seven of those days, a sign that investors are favoring the currency over the metal to protect their wealth amid concern that Greece may have to leave the euro. The U.S. economy will accelerate this quarter and in the following three months, according to the mean of 72 economists surveyed by Bloomberg.
“When the market gets very nervous, then they buy dollars and gold finds it difficult to rally,” said Jesper Dannesboe, an analyst at Societe Generale SA in London. “Given what’s going on in the markets at the moment, any rally will probably just be a bounce before another setback.”
Flight to Safety
Gold had risen as much as 14 percent to $1,792.70 by Feb. 28 on the Comex in New York, before tumbling to $1,593.60 yesterday. This year’s gain of 1.7 percent compares with a 0.2 percent increase in the Standard & Poor’s GSCI gauge of 24 commodities and a 5.5 percent advance in the MSCI All-Country World Index (MXWD) of equities. Treasuries returned 0.6 percent, a Bank of America Corp. index shows.
Bullion reached a record $1,923.70 in September. Prices slumped as the dollar became the “flight-to-safety asset,” Goldman Sachs Group Inc. said in a May 9 report. Barclays Plc cut its 2012 forecast by 8 percent to $1,716 yesterday because of political uncertainty in Europe and concern that China’s economy will continue to slow.
Some investors may be retreating to cash after $3.13 trillion was wiped from the value of global equities since late March and commodities slumped to their lowest this year. Prices have plunged before during gold’s almost sixfold rally since the end of 2000. It slid to within about 1 percentage point of a bear market on Dec. 29.
Speculators held a net-long position of 116,061 U.S. futures and options as of May 1, CFTC data show. While that’s 7.9 percent more than a week earlier, it’s still 54 percent less than the peak in August. They held 107,600 contracts on April 24, the fewest since January 2009, the data show.
Open interest, or contracts outstanding, in U.S. futures rose 1.4 percent in the week ended May 8, as prices slipped 3.5 percent, bourse data show. Rising open interest at a time of declining prices probably means traders added to bets on lower prices, Edel Tully, an analyst at UBS AG in London, wrote in a report yesterday. Open interest dropped 13 percent since the end of February and averaged 426,554 so far this year, 14 percent less than last year’s average, data compiled by Bloomberg show.
The U.S. Mint sold 230,500 ounces of gold coins in the first four months, 43 percent less than a year earlier, data on its website show. Holdings in gold-backed exchange-traded products rose 1.1 percent to 2,382 metric tons this year, valued at about $122 billion, data compiled by Bloomberg show.
Record-low interest rates from Europe to the U.S. may sustain demand for bullion, which generally earns investors returns only through price gains. The Federal Reserve has pledged rates at “exceptionally low levels” at least through late 2014 and the Bank of England kept its benchmark rate at 0.5 percent yesterday, where it has been since March 2009.
Europe’s financial turmoil is reigniting on the second anniversary of policy makers’ first attempt to curb Greece’s debt crisis. The country struggled to form a government after voters swung behind anti-bailout parties. Fifty-seven percent of investors, analysts and traders who are Bloomberg subscribers said at least one country will abandon the euro by year-end, a survey published yesterday showed.
The International Monetary Fund forecast last month that the 17-nation euro region would contract 0.3 percent this year as the U.S. expands 2.1 percent.
“Financial turmoil and easy money should see gold rally,” said Adrian Day, the president of Adrian Day Asset Management in Annapolis, Maryland. “Once the liquidation phase is over, gold could rebound smartly.”
Demand for physical gold in India, last year’s biggest buyer, was almost double the daily average when gold traded close to $1,580, Tully of UBS wrote in her note. India’s government said May 7 it withdrew an excise duty on precious metals jewelry after jewelers closed stores in the longest-ever strike through early April.
Volumes on the benchmark contract on the Shanghai Gold Exchange doubled to 7,734.4 kilograms (7.73 tons) on May 9 from the previous day and were the highest in almost two weeks. China’s gold imports from Hong Kong surged more than sixfold to 135,529 kilograms in the first quarter, according to export data from the Census and Statistics Department of the Hong Kong government. China doesn’t publish the country’s gold trade data.
This week’s decline took gold’s 14-day relative-strength index to 33.3, near a level of 30 that indicates to some analysts who study trading charts that a rebound may be due. Goldman expects prices to advance to $1,840 in six months and $1,940 in 12 months.
London Metal Exchange
In other commodities, 14 of 28 traders and analysts surveyed by Bloomberg expect copper to climb next week and two were neutral. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, rose 6.7 percent to $8,110 a ton this year.
Six of 14 people surveyed said raw sugar will decline next week and three were neutral. The commodity dropped 12 percent to 20.57 cents a pound since the start of January on ICE Futures U.S. in New York.
Ten of 25 people surveyed anticipate higher corn prices next week and six were neutral, while 11 of 26 said soybeans will advance and six predicted little change. Corn slipped 7.8 percent to $5.9575 a bushel this year as soybeans climbed 20 percent to $14.4975 a bushel.
“Uncertainties surrounding the future of Greece will negatively impact commodity prices,” said Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland. “We don’t expect that current economic activity is very commodity-price supportive.”
Gold survey results: Bullish: 14 Bearish: 12 Hold: 6
Copper survey results: Bullish: 14 Bearish: 12 Hold: 2
Corn survey results: Bullish: 10 Bearish: 9 Hold: 6
Soybean survey results: Bullish: 11 Bearish: 9 Hold: 6
Raw sugar survey results: Bullish: 5 Bearish: 6 Hold: 3
White sugar survey results: Bullish: 5 Bearish: 5 Hold: 4
White sugar premium results: Widen: 4 Narrow: 4 Neutral: 6