Gold’s biggest slump in three years
means traders and analysts are now the most bullish in three
months, speculating that Europe’s debt crisis, slowing growth
and a bear market in equities will drive demand for bullion.
Twenty-two of 25 people surveyed by Bloomberg expect the
metal to rise next week, the highest proportion since mid-July.
Prices rebounded 8.3 percent since reaching a two-month low at
the end of September and investors are adding to their holdings
in gold-backed exchange-traded products for the first time in a
month, according to data compiled by Bloomberg. Traders also
expect gains in copper, sugar, corn and soybeans, surveys show.
Gold slumped as much as 20 percent since reaching a record
$1,923.70 an ounce on Sept. 6 as investors sold the metal to
cover losses in other markets. As much as $4.2 trillion was
erased from the value of global equities in the past month on
mounting concern that economies will tip back into recession and
European lawmakers will fail to prevent sovereign defaults. The
last time traders and analysts were this bullish, bullion surged
21 percent to an all-time high within eight weeks.
“There’s macro-economic, systemic and monetary risk in the
world and there’s no sign of that going away any time soon,”
said Mark O’Byrne, the Dublin-based executive director of
GoldCore Ltd., a brokerage handling everything from quarter-
ounce British Sovereigns to one-kilogram (2.2-pound) bars. “All
the factors that drove gold to a record are still there.”
Bank of America
Gold advanced 17 percent this year to $1,667.70 by 1:07
a.m. in New York, heading for an 11th consecutive annual
advance. It’s the third-best performer behind gasoil and Brent
crude in the Standard & Poor’s GSCI Index of 24 commodities,
which fell 1.2 percent. The MSCI All-Country World Index of
equities dropped 10 percent and Treasuries returned 7.7 percent,
according to a Bank of America Corp. index.
Bullion dropped 11 percent in September, the most since
October 2008. That spurred speculators in U.S. futures to cut
their net-long position, or bets on higher prices, to the lowest
since February by Oct. 4, according to data from the Commodity
Futures Trading Commission. They held a net 127,249 futures and
options, 13 percent below the average over the past five years.
Investors reduced their holdings in gold-backed ETPs by
almost 17 metric tons last month, data compiled by Bloomberg
show. They added 8.7 tons so far this week, taking combined
assets to almost 2,219 tons, more than the holdings of all but
four central banks.
Accelerating Purchases
Those central banks are also accelerating their purchases.
Thailand, Bolivia and Tajikistan bought a combined 18.2 tons in
August, International Monetary Fund data show. The slump in
prices means more buying for reserves is “very likely,”
according to Edel Tully, a London-based analyst at UBS AG.
Central banks are adding to their holdings for a third year, the
longest expansion in almost four decades.
The traders and analysts surveyed by Bloomberg are also
bullish on copper, which entered a bear market last month after
slumping more than 20 percent from a peak in July. Seven of nine
people expect prices to rise next week. The metal for delivery
in three months, the London Metal Exchange’s benchmark contract,
dropped 23 percent to $7,392 a ton this year. Copper reached a
14-month low of $6,635 on Oct. 3 as investors speculated that
slowing growth will curb demand for raw materials.
China, the world’s biggest copper consumer, imported the
most metal in 16 months in September, customs data show. Diego Hernandez, chief executive officer of Codelco, the largest
copper producer, said in an interview in London on Oct. 4 that
the Asian nation should take advantage of the slump to restock.
Warehouse Stockpiles
While Barclays Capital cut its forecast for this year’s
shortfall in copper supply five times since April, the bank is
still predicting a 468,000-ton deficit. That’s enough metal to
supply Japan for five months. Stockpiles in warehouses monitored
by exchanges in London, Shanghai and New York fell about 8
percent since the end of March, a sign production is still
failing to keep up with demand.
“Should debt concerns in the euro zone recede, we are
looking to more fundamentally based trading through next year
where the likes of copper should benefit,” said Andrey Kryuchenkov, an analyst at VTB Capital in London. “We just need
to shake off macro fears and concentrate on market specifics.”
Seven of 12 people surveyed anticipate gains in raw-sugar
prices next week and eight said white, or refined, sugar would
also advance. Raw sugar traded on ICE Futures U.S. in New York
slipped 16 percent this year to 26.91 cents a pound. White sugar
traded on NYSE Liffe in London fell 12 percent to $684.10 a ton.
Top Producer
Raw sugar climbed 7 percent this week and white sugar 4.7
percent on speculation that flooding in Thailand, the world’s
second-largest shipper, may delay harvests at a time when mills
in top producer Brazil are ending their season early.
The Thai sugar harvest may be delayed by two weeks,
according to Newedge Group SA. Mills in Brazil’s Sao Paulo
state, which accounts for more than 50 percent of the nation’s
cane production, started shutting for the season in late
September, the earliest in 12 years, because of a smaller crop,
according to Celso Junqueira Franco, president of the Union of
Biofuel Producers.
Fourteen of 28 people surveyed expect corn to rise next
week and 19 of 27 anticipate the same thing for soybeans. Prices
for both crops plunged by the most in at least three years last
month on prospects for improving harvests. Both commodities rose
the most in a year or more on Oct. 11 on the Chicago Board of
Trade as traders speculated that declines in September would
boost purchases by makers of food, animal feed and biofuels.
“Commodity markets are in the process of bottoming out and
I think it may take a little time, maybe a few months, to
solidify that bottom,” said James Paulsen, the chief investment
strategist at Minneapolis-based Wells Capital Management, which
oversees about $360 billion of assets. “You will see
commodities going up now. The intensity of commodity selling may
be ending and we may be heading in another direction.”
Gold survey results: Bullish: 22 Bearish: 1 Hold: 2 Copper survey results: Bullish: 7 Bearish: 1 Hold: 1 Corn survey results: Bullish: 14 Bearish: 9 Hold: 5 Soybean survey results: Bullish: 19 Bearish: 5 Hold: 3 Raw sugar survey results: Bullish: 7 Bearish: 4 Hold: 1 White sugar survey results: Bullish: 8 Bearish: 3 Hold: 1 White sugar premium results: Widen: 6 Narrow: 2 Neutral: 4
To contact the reporters 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