Top analysts see record gold in Q4 as funds retreat
Bullion will average $1,900/oz in the fourth quarter, 16% more than now, as central banks maintain record-low interest rate and hedge funds remain less bullish, say leading analysts.
Posted: Thursday , 19 Apr 2012
Gold, in the 12th year of a bull market, will reach a record in the fourth quarter as central banks maintain record-low interest rates, even with hedge funds the least bullish since 2009, the most accurate analysts said.
Bullion will average $1,900 an ounce in the fourth quarter, 16 percent more than now, according to the median estimate of the top five precious-metals analysts in Bloomberg Rankings in the past two years. Borrowing costs from the U.S. to the euro region are the lowest ever, boosting the appeal of gold, and investors' holdings are within 0.7 percent of a record. The most widely held option confers the right to buy at $2,200 by July.
Gold gave up most of its gains this year on signs the global economy will avoid another recession. Demand for physical metal held steady on mounting concern that policy makers will need to intervene again to sustain that growth. Bullion rose about 70 percent as the Federal Reserve bought $2.3 trillion of debt in two rounds of so-called quantitative easing from December 2008 to June 2011.
"I don't think the Fed or any central bank can abandon the policy of easing and as economies weaken and more money is printed, gold will get stronger," Jeffrey Sica, the Morristown, New Jersey-based president of SICA Wealth Management who helps oversee $1 billion of assets, said by phone April 13. "People have lost faith in governments. The overall fear of a worsening debt crisis in Europe will send gold higher."
The metal rose 4.5 percent to $1,634.50 this year, and is now 8.7 percent below this year's high of $1,790.75 reached Feb. 29. The record quarterly average of $1,706.38 was set in the three months through September, when prices peaked at $1,921.15. The Standard & Poor's GSCI gauge of 24 raw materials gained 4.5 percent since the start of January and the MSCI All-Country World Index of equities advanced 8.9 percent. Treasuries lost less than 0.1 percent, a Bank of America Corp. index shows.
Gold rose more than sixfold since the start of 2001, the first year of the bull market, as the MSCI All-Country World Index advanced 13 percent. Treasuries returned 86 percent.
Holdings in exchange-traded products backed by bullion expanded 1.6 percent to 2,394 metric tons this year, valued at $126.7 billion, according to data compiled by Bloomberg. The seven most widely held options on futures traded on the Comex in New York give owners the right to buy at prices ranging from $1,800 to $2,300, bourse data show.
John Paulson, who manages about $24 billion in his New York-based firm Paulson & Co., told investors April 16 that he took some of his own money out of the company's $6.8 billion Credit Opportunities Fund and put it into the $1.2 billion Gold Fund, according to a person familiar with the matter. Paulson already holds the biggest stake in the SPDR Gold Trust, the largest ETP backed by bullion. The 56-year-old is seeking to make up for record losses in 2011.
His bullishness contrasts with other money managers and speculators, who are cutting their combined bets on higher prices. They now hold 109,511 U.S. futures and options, from 197,552 at the end of February and the fewest since January 2009, Commodity Futures Trading Commission data show.
Demand for bullion coins is also weakening. Sales by Australia's Perth Mint, which processes all of the country's bullion, declined 9.6 percent last month. The U.S. Mint sold 210,500 ounces in the first quarter, 30 percent less than a year earlier, data on its website show.
Imports by India, the second-biggest buyer, may drop 40 percent this quarter after jewelers shut stores to protest a new tax, the Bombay Bullion Association said April 2. Global jewelry demand will decline 3.8 percent to a three-year low of 1,888 tons in 2012, Barclays Capital predicts.
About $4.79 trillion has been added to the value of global equities this year on growing investor confidence that stronger growth will boost corporate profits. The International Monetary Fund raised its forecast for 2012 global growth to 3.5 percent on April 17 from 3.3 percent.
Fed policy makers Janet Yellen and William C. Dudley endorsed the view last week that the central bank should hold its target rate for overnight loans between banks near zero through 2014. Gold generally earns investors returns only through price gains.
Bank of Japan Deputy Governor Kiyohiko Nishimura said yesterday the central bank is ready to implement additional easing if necessary. The European Central Bank has engaged in a 1 trillion-euro ($1.3 trillion) long-term refinancing operation, or LTRO, since December to provide liquidity to the region's lenders.
The 17-nation euro zone will contract 0.3 percent this year, as world growth slows from 3.9 percent in 2011, the IMF forecast. China, the engine of the global recovery, expanded 8.1 percent in the first quarter, the slowest pace in almost three years, government data showed April 13.
Demand for gold also may be buoyed by investors seeking protection against weakening currencies. The metal priced in euros jumped 20 percent in the past year, compared with a 9.3 percent gain in dollar terms.
Some are holding gold to hedge against inflation as central banks pump more money into financial systems. A measure of traders' inflation expectations used by the Fed to guide monetary policy reached 2.78 percent on March 19, the highest since August. That compares with 3.63 percent in October 2008.
The analysts surveyed by Bloomberg -- Deutsche Bank AG's Daniel Brebner, UniCredit SpA's Jochen Hitzfeld, TD Securities Inc.'s Bart Melek, Citigroup Inc.'s David Wilson and Prestige Economics LLC's Jason Schenker -- predicted an average of $1,680 this quarter and $1,800 the next.
Those averages will mean Barrick Gold Corp., Newmont Mining Corp. and AngloGold Ashanti Ltd., the three largest producers, reporting record profit this year, according to the mean of analysts estimates compiled by Bloomberg.
Shares of Toronto-based Barrick fell 12 percent this year while Greenwood Village, Colorado-based Newmont declined 20 percent and Johannesburg-based AngloGold Ashanti Ltd. plunged 24 percent. The 30-member Arca Gold Miners Index outperformed the price of bullion in six of the past 11 years.
Central banks are joining investors in buying gold, adding 439.7 tons in 2011, the most in almost five decades. They may buy a similar amount this year, the London-based World Gold Council estimates. Citigroup predicts purchases of 400 tons and Deutsche Bank forecasts 500 tons.
"People are worried about currency debasement and with real interest rates where they are there is no yield lost by locking your money into gold," Mihir Worah, who manages Pacific Investment Management Co.'s $22 billion Commodity Real Return Strategy Fund from Newport Beach, California, said by phone April 13. "We would be buyers. We have a modest overweight on gold and expect central banks to be net buyers this year too."