Monday, November 14, 2011

Gold traders most bullish since 2004 on debt crisis

BLOOMBERG-LONDON: 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 tonne this week, within 1% 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 November 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% in three weeks in September. 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, 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% to $1,764.50 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 5%. The MSCI All-Country World Index of equities retreated 8.9% and Treasuries returned 8.6%, according to a Bank of America Corp index.
The gold survey has forecast prices accurately in 223 of 387 weeks, or 58% 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 tonne of gold added to ETPs this week is the most since August 19 and investors bought 40.9 tonne this month, the most since July. Combined holdings of 2,312.1 tonne are now valued at $131.2 billion and exceed the reserves of all but four central banks, data compiled by Bloomberg show.
The record of 2,330 tonne was set August 18. Money managers raised their combined net-long position in US futures and options by 6.8% to 148,279 contracts in the week ended November 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 on Thursday.
"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.
Gold priced in euros is doing even better, rising 4.6% this month compared with a 2.3% 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 Thursday that it reduces volatility. Commodities as measured by the S&P GSCI gauge are heading for their weakest performance since 2008.

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