Gold’s 12th Annual Advance

December 31, 2012 at 10:10


Gold rose, poised for a 12th consecutive annual gain, as central banks from Europe to China pledge more steps to spur economic growth and U.S. lawmakers near a deadline for budget talks.

Gold rose, extending this year’s gain to 6.6 percent. Prices rebounded from a five-week slump as the deadline for the so-called U.S. fiscal cliff of automatic tax increases and spending cuts due to take effect tomorrow loomed with no accord in sight among lawmakers.

Investors from John Paulson to George Soros have a $141 billion bet via near-record holdings in gold-backed exchange- traded products after the Federal Reserve said Dec. 12 it would buy $45 billion of Treasury securities a month as of January, adding to $40 billion a month of mortgage-debt purchases. Gold will probably peak in 2013 because of improving U.S. growth, even as the Fed expands stimulus, Goldman Sachs Group Inc. said Dec. 5. Morgan Stanley said a day later bullion will be among next year’s best-performing commodities.

“Negative real interest rates in most major economies and currency debasement are leading to increasing investment and demand for a store of value,” said Mark O’Byrne, executive director of Dublin-based GoldCore Ltd., a brokerage that sells and stores bullion coins and bars. “People are waiting for clarity regarding the outcome of the fiscal-cliff negotiations. They’ll manage to kick the can down the road, but they won’t address the underlying huge fiscal issues.”

The metal averaged a record $1,669 this year even as it slid 6 percent since September, set for the biggest quarterly drop since 2004. The run of annual gains is the longest in at least nine decades. The Standard & Poor’s GSCI gauge of 24 commodities fell 0.2 percent this year and the MSCI All-Country World Index (MXWD) of equities climbed 13 percent. Treasuries returned 2.3 percent, a Bank of America Corp. index shows.

Gold for February delivery gained 0.7 percent to $1,666.90 on the Comex in New York, where floor trading will be closed tomorrow for New Year’s Day. Platinum rallied 9.1 percent this year in London and palladium gained 6.9 percent as labor unrest in South Africa helped curb supply. Silver increased 8.4 percent and rhodium declined 23 percent.

Congress is working to avert more than $600 billion in higher taxes and spending cuts and a failure risks a recession, the Congressional Budget Office has said. Senate Majority Leader Harry Reid said the chamber will resume work today, though “significant differences” remain among the parties involved.
“Once that’s resolved, there’s better clarity in the market,” said Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd. in Melbourne, referring to the budget talks. “Gold has more upside than downside risk.”

Holdings in gold-backed ETPs rose 0.2 metric ton to 2,631.8 tons on Dec. 28, less than 1 ton below the record set Dec. 20, data compiled by Bloomberg show. Nations from Brazil to Iraq to Russia are buying metal to add to reserves. Prices will reach $2,000 next year, according to a Bloomberg survey of 49 traders, investors and analysts in mid-December. Bullion set an all-time high of $1,921.15 in September 2011.

While the International Monetary Fund cut its 2013 growth forecast twice since July, it expects a 3.6 percent global expansion next year, from 3.3 percent this year.

“As the macro environment improves, gold investors in developed economies will likely increasingly look to diversify from bullion and into riskier assets,” Andrey Kryuchenkov, an analyst at VTB Capital in London, wrote in a Dec. 29 report. “It will not happen overnight and we still see bullion benefiting from relative dollar weakness next year, continuous official sector purchases and, most importantly, recovering jewelry demand in India.”