Tags: Gold | Bull | central bank | stimulus

Gold Bulls Return amid Hopes for Central Bank Stimulus

Sunday, 07 December 2014 04:31 PM

Speculators boosted bullish gold bets to a three-month high on signs central banks will act to counter low inflation, reviving the allure of bullion as a hedge.

The net-long position in New York futures and options climbed for a third week, the longest expansion since July, government data show. Short holdings fell to a 14-week low.

Futures rebounded 5.3 percent since touching a four-year low on Nov. 7. European Central Bank President Mario Draghi said last week that policy makers “won’t tolerate” a prolonged period of low inflation, as officials consider increasing asset purchases. China lowered interest rates to spur economic growth, while Japan has expanded its unprecedented stimulus program.

“Prices have to trade back higher because of the sheer size of the monetization of this debt,” Frank Holmes, the chief investment officer at U.S. Global Investors in San Antonio, which oversees about $1.2 billion, said by phone Dec. 5. “How do you unwind that? Gold should be looked at as an insurance.”

The net-long position rose by 20 percent to 79,497 futures and options in the week ended Dec. 2, the highest since Aug. 26, according to U.S. Commodity Futures Trading Commission data. Holdings more than doubled in three weeks.

Futures Climb

In New York, futures rose 1.3 percent to $1,190.40 an ounce last week. The Bloomberg Commodity Index dropped 0.7 percent and the Bloomberg Dollar Index rose 1.4 percent. The MSCI All- Country index of world equities fell 0.3 percent.

The ECB’s Governing Council expects to consider a package of broad-based asset purchases next month, two central-bank officials familiar with the deliberations said last week. The Bank of Japan boosted its asset purchases in October. China on Nov. 21 lowered its key interest rate for the first time since July 2012. Bullion priced in euros climbed about 11 percent this year, and 15 percent in yen.

Futures fell to $1,130.40 on Nov. 7, the lowest since 2010, sparking speculation that demand will climb from buyers of bars, coins and jewelry. India, which accounts for about a quarter of global bullion demand, eased import rules on the metal in late November. Gold shipments to Turkey, the fifth-largest consumer in the third quarter, climbed last month to the highest in more than six years.

Money Supplies

Gold surged 70 percent from December 2008 to June 2011 as central banks increased money supplies on an unprecedented scale, spurring inflation concerns. The metal tumbled 28 percent in 2013, the biggest drop in three decades, after some investors lost faith in bullion as a store of value.

Prices fell 1.4 percent on Dec. 5 after a report showed U.S. employers added the most jobs in November since early 2012. Gains for the labor markets are increasing speculation that the Federal Reserve is getting closer to raising interest rates, reducing the allure of gold, which generally offers investors returns through increasing prices.

A rally in equities and the dollar cut the appeal of gold as an alternative asset. The dollar rose to a five-year high against a basket of 10 currencies on Dec. 5, and the Standard & Poor’s 500 index of stocks touched an all-time high the same day. The ECB discussed buying all assets except bullion as it readies for possible stimulus measures, Draghi said last week.

Market ‘Alternatives’

“There is very little prospect of a significant gold upside unless we see another financial crisis,” Jessica Fung, a commodities analyst at BMO Capital Markets in Toronto, said in a Dec. 4 interview. “When the markets have alternatives to gold, and they have other assets where they can generate decent returns, gold is simply not there for the trade.”

Net-wagers across 18 U.S. traded commodities fell 7.8 percent to 733,384 contracts as of Dec. 2, the first decline in eight weeks, CFTC data show.

Bets on higher oil prices rose 14 percent to 184,374 contracts. West Texas Intermediate slumped 33 percent this year, diminishing the likelihood that consumer prices will accelerate and reducing demand for bullion as an inflation hedge. The correlation between gold and oil rose close to 0.4 last week, the strongest since July 2013.

Farm Wagers

Net-short wagers on copper, betting on price declines, expanded to 5,919 contracts from 1,872 a week earlier.

A measure of net-long positions across 11 agricultural commodities fell 13 percent to 443,818 contracts, the biggest drop since mid-September.

Bullish bets on cattle dropped by 2.3 percent to 107,007 contracts. Futures slumped 2.6 percent last week, the biggest decline for a most-active contract since August. Prices reached an all-time high last month after the U.S. herd started the year at the smallest since 1951.

“Producers are holding back inventory and they’re growing the herd, in swine as well as cattle,” Michael Underhill, the chief investment officer at Pewaukee, Wisconsin-based Capital Innovations, which oversees about $1 billion, said in a Dec. 4 interview. “This year, we had a bumper crop in corn, and they were able to feed and fatten them up.”

To contact the reporter on this story: Megan Durisin in Chicago at mdurisin1@bloomberg.net To contact the editors responsible for this story: Millie Munshi at mmunshi@bloomberg.net Steve Stroth

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Speculators boosted bullish gold bets to a three-month high on signs central banks will act to counter low inflation, reviving the allure of bullion as a hedge.
Gold, Bull, central bank, stimulus
Sunday, 07 December 2014 04:31 PM
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