Traders Split on Gold New Highs Within Next 2 Years

September 9, 2013 at 10:24


Gold traders are divided on the outlook for prices next week, weighing signs of an improving US economy against the threat of a military attack on Syria. Two years after bullion set a record, the majority said a new peak won’t be reached in the next 24 months.

Thirteen analysts surveyed expect prices to rise next week, the same number were bearish and five were neutral. Gold slumped 28% since it reached an all-time high of $1,921.15 an ounce on September 6, 2011.

Eighteen people surveyed said the metal won’t exceed that level in the next two years and 11 predicted another record. Gold is set for its first decline in 13 years after some investors lost faith in the metal as a store of value. Bullion rallied 17% from a 34-month low in June as the slump stoked demand for jewellery and coins and western nations debated attacking Syria after accusations the government used chemical weapons.

An accelerating US economy increased speculation the Federal Reserve will buy fewer bonds to stimulate growth, diminishing demand for gold as a hedge against inflation.

“As long as we’re speculating on when any possible military intervention might take place, that could be supportive for gold as a safe haven,” said Jonathan Butler, a precious metals strategist at Mitsubishi International (Europe) in London.

Fed bond buying “will be scaled back in the remainder of this year. If that were to take place, there’s going to be some downside for gold,” he said. The metal fell 17% to $1,386.84 in London this year, tumbling into a bear market in April. The Standard &Poor’s GSCI gauge of 24 commodities rose 2.4% and the MSCI All-Country World Index of equities gained 9.5%.

Bullion set a record in 2011 as investors judged that unprecedented money printing by central banks would debase financial assets. While the Fed’s debt-buying program swelled its balance sheet by 28% since then, gold has been the sixth-worst performing commodity in the S&P GSCI gauge as consumer price increases failed to accelerate.

John Paulson, the billionaire hedge fund manager and biggest investor in the SPDR Gold Trust, the largest gold-backed exchangetraded product, cut his stake in the fund by 53% last quarter, a government filing showed. Holdings across gold ETPs retreated 26% this year, erasing $54.7 billion from their combined value.

Gold reached a three-month high last week and hedge funds’ bullish bets were the highest since January as US President Barack Obama sought approval before ordering action against Syria, whose government has been accused of using chemical weapons against its own people.

A Senate committee voted September 4 to authorise a limited military operation in Syria, the first step toward congressional endorsement. Hedge funds and other large speculators increased their net-long position by 34% to 97,902 contracts in the week through August 27, as bearish bets tumbled 37%, the biggest drop in 11 months, US Commodity Futures Trading Commission data show. Net-bullish wagers tripled since the end of June.

The metal rose 5.3% last month and 7.3% in July, the first back-toback monthly gains since September. The rally above $1,400 last month slowed purchases, along with near-record prices in India.