Gold Bears Retreat as Prices Reach Two-Month High

Source: Bloomberg

By Tony C. Dreibus - Aug 19, 2013 8:05 AM ET

Speculators cut bullish and bearish bets on gold simultaneously for the first time in two months as prices advanced to the highest since mid-June on signs of strengthening physical demand.
The net-bullish position rose 18 percent to 56,604 futures and options by Aug. 13, as the 17 percent contraction in short bets exceeded the 3 percent drop in long wagers, U.S. Commodity Futures Trading Commission data show. Net-long holdings across 18 U.S.-traded commodities expanded 23 percent as the position in silver more than doubled and investors turned positive on copper for the first time since February.

Gold tumbled a record 23 percent last quarter as some investors lost faith in the metal as a store of value. The rout spurred losses for billionaire John Paulson, who joined George Soros in selling bullion holdings in three months ended June 30, government filings showed last week. Lower prices spurred demand in India and China, the top buyers, driving global coin and bar purchases to record in the second quarter and jewelry purchases to the highest since 2008, the World Gold Council said Aug. 15.
“People became more interested in holding gold as the price dropped,’ said Tom Stringfellow, the president of San Antonio-based Frost Investment Advisors LLC, which manages about $9 billion. ‘‘Sometimes it’s too far too fast, and in this market, there’s money always looking for relative value.”

Gold Rally
Prices jumped 4.5 percent to $1,371 an ounce on the Comex in New York last week, the biggest gain since July 12. Thirteen analysts surveyed by Bloomberg News expect the metal to rise this week, with a further four bearish and five neutral. That’s the highest proportion of bulls since March 8. Futures climbed another 0.2 percent today.
The Standard & Poor’s GSCI Spot Index of 24 commodities advanced 2.4 percent last week. The MSCI All-Country World Index of equities slid 1 percent. The Bloomberg Dollar Index, a gauge against 10 major trading partners, gained 0.5 percent, and the Bloomberg U.S. Treasury Bond Index dropped 1.1 percent.
Global bar and coin sales soared 78 percent last quarter from a year earlier to 507.6 metric tons as demand more than doubled in India and China, World Gold Council data show. That’s valued at about $22.4 billion at today’s price. Jewelry demand jumped 37 percent to 575.5 tons. China’s consumption rose 54 percent to 706.4 tons in the first half, putting it on track to overtake India as the biggest user, the China Gold Association said Aug. 12.

JPMorgan Outlook
Demand in India and possible mine strikes in South Africa may boost prices in the next four to five weeks before an industry conference in Denver, JPMorgan Chase & Co. said in a report Aug. 15. The metal may rally to $1,420 by the end of the year as the decline in prices attracts investors, central banks and fabricators, Jeffrey Christian, a managing partner at CPM Group, said in an interview in Jaipur, India, last week.

Declining equities and a weaker dollar have helped support gold, Suki Cooper, a New York-based analyst at Barclays Plc, said in a report Aug. 16. The S&P 500 Index fell 2.1 percent last week, the most since June. Bullion tumbled 18 percent this year as the S&P 500 advanced to a record Aug. 2.
Strengthening physical demand wasn’t enough to compensate for sales from exchange-traded products last quarter, driving overall demand down 12 percent to a four-year low, the World Gold Council said. Paulson & Co., the largest investor in the SPDR Gold Trust, the biggest bullion ETP, cut its stake by 53 percent in the second quarter to 10.2 million shares, a filing to the U.S. Securities and Exchange Commission showed Aug. 14. The stake was valued at $1.35 billion on Aug. 16, compared with $1.21 billion at the end of the quarter.

Hedge Funds
Soros Fund Management LLC sold 530,900 SPDR shares last quarter, valued at $63.2 million as of June 28, an SEC filing showed. Third Point LLC, run by billionaire hedge-fund manager Daniel Loeb, sold all of its 130,000 SPDR shares, valued at $15.5 million at the end of the quarter. SPDR gold holdings climbed 0.5 percent last week, the first gain since December.
Gold tumbled into a bear market in April, reaching a 34-month low on June 28, amid speculation the U.S. economy gained enough traction for the Federal Reserve to begin curbing stimulus. Prices surged 70 percent from December 2008 to June 2011 as the central bank bought more than $2 trillion of debt, increasing demand for a hedge against inflation.

Stimulus Cuts
A Bloomberg survey this month showed 65 percent of economists expect Fed Chairman Ben S. Bernanke to reduce the $85 billion of monthly asset purchases in September, probably starting with a cut of $10 billion.
“Gold has until this point been a store of value in times of instability,” said Chad Morganlander, a Florham Park, New Jersey-based fund manager at Stifel Nicolaus & Co. whose company oversees about $130 billion of assets. “If one believes we are hitting a point of self-sustaining recovery in the U.S., investors may want to underweight or eliminate their gold exposure.”
Money managers pulled $36.28 million from precious-metal funds in the week ended Aug. 14, according to Cambridge, Massachusetts-based EPFR Global, which tracks money flows. Commodity funds had inflows $29.89 million.
Net-long positions in crude slipped 0.7 percent to 308,786 contracts, CFTC data show. West Texas Intermediate gained for six straight sessions through Aug. 16, the longest rally since April. Prices gained 1.4 percent last week amid concern that clashes in Egypt will disrupt Middle East supply.
Money managers held a net-long position in copper of 7,041 contracts, after betting on lower prices for 24 consecutive weeks, the longest bearish stretch since July 2009, the CFTC data show. Factory output in China, the biggest metals consumer, jumped more than estimated last month, government data showed Aug. 9. Futures rose 1.8 percent last week.

Silver Wagers
Bullish silver wagers jumped to 11,423 contracts from 4,358 a week earlier. Prices surged 15 percent in New York last week, the most since September 2008. Holdings of the metal through ETPs reached a record Aug. 16.
A measure of net-long positions across 11 agricultural products totaled 80,339 futures and options, government data show. That compares with a net-short holding of 9,713 last week, the first bearish outlook in records going back to June 2006. The S&P GSCI Agriculture Index of eight commodities rose 2 percent last week.
Investors held a record net-short position in corn of 123,221 contracts versus 113,072 a week earlier. Prices in Chicago climbed 2.3 percent last week after the U.S. Department of Agriculture said the number of unseeded acres surged from the prior year because of wet weather in May and June.

U.S. Exporters
Bullish cotton wagers jumped 25 percent to 79,292, the highest since September 2010. Prices rose 4.9 percent last week, the most in two months. Soybean holdings rebounded 8.3 percent to 47,177, snapping three weeks of declines. U.S. exporters reported selling 284,000 tons to China on Aug. 16, following a sale of 110,000 tons reported Aug. 14.
China’s exports and imports rebounded by more than estimated last month, customs data showed Aug. 8. Sales of food and beverages boosted retail gains in the nation, while steel products, nonferrous metals, power and cement showed faster output in July, according to Lu Ting, Bank of America Corp.’s head of Greater China economics in Hong Kong. The dollar has dropped 1.5 percent against 10 major currencies since mid-July.

“The latest reports from China indicate the economy is stabilizing,” said Adrian Day, who manages about $170 million of assets as the president of Adrian Day Asset Management in Annapolis, Maryland. “In the last month, the dollar has been relatively weak. If we see a continuation of that trend, and that looks as though it could continue, that would be positive for commodities.”