Tags: gold | Fed | rates | Putin

Gold Traders Most Bearish Since 2009 as Fed Signals Higher Rates

Friday, 21 March 2014 09:54 AM

Gold traders are the most bearish in more than four years after the U.S. Federal Reserve indicated it will probably increase interest rates by the middle of next year, curbing demand for the metal as a store of value.

Sixteen analysts surveyed by Bloomberg News expect gold to fall next week, five are bullish and one neutral, the highest proportion of bears since July 2009. The Fed cut monthly bond buying by $10 billion on March 19 and estimated the benchmark rate target will be 1 percent at the end of 2015 and 2.25 percent a year later, compared with a December estimate of 0.75 percent and 1.75 percent.

Bullion rose 70 percent from December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system and cut interest rates to a record low to boost the economy. Gold slid the most since 1981 last year in anticipation of less stimulus. It rose 10 percent this year, reaching a six-month high this week, as turmoil over Ukraine left Russia and the West embroiled in their worst confrontation since the Cold War.

“The rate outlook was higher than expected and more hawkish,” said Georgette Boele, a commodities strategist at ABN Amro Group NV in Amsterdam. “Gold doesn’t pay interest. If rates go up, it’s not attractive to be in gold, unless it’s driven by inflation fears. In this case, it’s driven by relatively solid economic growth.”

Gold Prices

Bullion rose 0.3 percent to $1,331.23 an ounce in London today, after slumping 28 percent last year. It reached $1,392.22 on March 17, the highest since Sept. 9. The Standard & Poor’s GSCI gauge of 24 raw materials added 1 percent this year, the MSCI All-Country World index of equities fell 0.9 percent and the Bloomberg U.S. Treasury Bond Index gained 1.4 percent. The Bloomberg Dollar Index, a gauge against 10 major trading partners, increased 0.2 percent.

Gold slipped 1.9 percent on March 19, the most since December. The Bloomberg Dollar Index climbed 0.8 percent that day and reached a one-month high yesterday. Gold’s 30-day correlation coefficient to the dollar gauge was at minus 0.55 yesterday, with a figure of minus 1 meaning the two always move in opposite directions.

The Fed cut monthly bond-buying to $55 billion and said it will slow purchases in “further measured steps.” Economists surveyed by Bloomberg News before the meeting forecast that officials would announce an end to the program in October.

Rate Increase

Fed Chair Janet Yellen said she saw a “considerable time” between the end of the stimulus and the first rate increase, meaning “around six months or that type of thing,” speaking at a press conference after presiding over her first policy meeting.

“Gold is taking its overdue breather,” Adrian Day, the president of Adrian Day Asset Management in Annapolis, Maryland, said in an e-mail. “One percent interest rates by the end of next year is, in my view, hardly hawkish. I see this is a pause not an end to the rally.”

Bullion is the second-best performing metal this year in the S&P GSCI gauge, after nickel, and the seventh-best material overall. Holdings in gold-backed exchange-traded products gained in February for the first month in 14 and increased another 18.8 metric tons so far in March, data compiled by Bloomberg show.

Speculators have the biggest bet on a gold rally since December 2012. They more than tripled their net-long position this year and held 123,007 contracts in the week ended March 11, U.S. Commodity Futures Trading Commission data show.

Ukraine Crisis

Gold gained in the previous six weeks, partly as tension increased between Russia and the West. Russian President Vladimir Putin said March 18 he will annex Crimea after citizens in the region voted in a disputed referendum to secede from Ukraine. The U.S. and the European Union have imposed sanctions on Russia and warned of escalating measures to come.

While Putin said Russia doesn’t plan to further split up Ukraine, he asserted his right to defend Russian speakers in Ukraine’s east.

Ukraine said it plans to reinforce its eastern border with its neighbor and withdraw troops from Crimea, ceding control of the Black Sea peninsula. Demilitarizing Crimea “is the best way to de-escalate the situation,” said Andriy Parubiy, head of Ukraine’s National Security Council.

Gold’s 14-day relative-strength index rose to 72.9 on March 14, signaling to some analysts who study technical charts that prices were set to drop. The gauge was at 47.2 yesterday.

“Gold had become overbought after its surge to six-month highs and was due profit taking and a correction,” said Mark O’Byrne, a director in Dublin at brokerage GoldCore Ltd., which has more than $200 million in bullion under management. “The abatement of tensions between Russia and the West has contributed to the pullback and momentum could lead to further falls next week.”

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Gold traders are the most bearish in more than four years after the U.S. Federal Reserve indicated it will probably increase interest rates by the middle of next year, curbing demand for the metal as a store of value.
Friday, 21 March 2014 09:54 AM
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