Tags: gold | bulls | wagers | metal

Gold Bulls Increase Wagers to Highest Since January

Sunday, 01 Sep 2013 08:33 PM


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Hedge funds and other speculators are making the biggest bet on a gold rally since January amid mounting signs that the U.S. will lead a military strike against Syria drove prices to a three-month high.

Money managers boosted their net-long position by 34 percent to 97,902 futures and options by Aug. 27, the most since Jan. 22, U.S. Commodity Futures Trading Commission data show.

Holdings of short contracts tumbled 37 percent to 32,088, the biggest drop in 11 months. Net-bullish holdings across 18 U.S.- traded commodities climbed 18 percent to 824,251, the highest since February.

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Gold, down 27 percent from the record set two years ago after some investors lost faith in the metal as a store of value, climbed for four weeks as the rout spurred demand for coins, bars and jewelry.

Prices gained 6.3 percent in August, and U.S. equities fell the most in more than a year, as western nations debated a response to alleged chemical-weapons use in Syria. That increased concern about disruptions to Middle East oil supply that would raise energy costs and stoke inflation.

“Investors have sobered up with their perceptions of gold,” said Michael Cuggino, who manages $12 billion of assets at Permanent Portfolio Family of Funds Inc. in San Francisco. “You have people talking about it as an investment again. Physical demand never really tailed off.”

Gold Climbs

Gold climbed 30 cents to $1,396.10 an ounce on the Comex in New York last week. Twenty-three analysts surveyed by Bloomberg expect prices to rise this week. Six were bearish and five neutral, leaving the highest proportion of bulls since March 8.

The Standard & Poor’s GSCI Spot Index of 24 commodities gained 2.9 percent last month. The MSCI All-Country World index of equities dropped 2.3 percent, while the S&P 500 tumbled 3.1 percent, the most since May 2012.

The Bloomberg Dollar Index, a gauge against 10 major trading partners, gained 0.8 percent and the Bloomberg U.S. Treasury Bond Index slid 0.8 percent. Commodities beat equities, bonds and the dollar for a third month, the longest winning streak in two years.

President Barack Obama said Aug. 31 he will seek congressional authorization to use military force against Syrian regime targets once Congress returns from its recess.

The administration released an intelligence assessment a day earlier that concluded with “high confidence” the Middle Eastern regime carried out an attack that killed 1,429 people earlier. Gold reached $1,434 on Aug. 28, the highest since May 14, before falling for three days.

Coin Demand

Demand for jewelry, coins and bars will reach as much as 1,000 metric tons in India and China in 2013, the World Gold Council estimates. Gold sales by the Austrian mint in Vienna expanded 79 percent from January to July compared with a year earlier. Russia increased its gold reserves in July to the most since at least 1993, with Kazakhstan and Guatemala also adding to holdings, according to International Monetary Fund data.

Bullion holdings through exchange-traded products climbed 0.1 percent last week, the third straight advance and the longest run of increases this year. More than $54.1 billion was wiped from the value of the assets this year as gold prices tumbled 17 percent, spurring losses for billionaire John Paulson and forcing Newcrest Mining Ltd. and other mining companies to announce at least $26 billion in writedowns.

Fed Meeting

Federal Reserve officials meeting this month will consider whether to begin curbing $85 billion of monthly bond purchases. Gold rose 70 percent from December 2008 to June 2011 as the U.S. central bank pumped more than $2 trillion into the financial system by purchasing debt, increasing investor concerns about currency debasement and accelerating inflation.

Fed policy makers were “broadly comfortable” with Chairman Ben S. Bernanke’s plan to start reducing bond buying later this year if the economy improves, according to minutes of their July meeting released Aug. 21. The U.S. economy expanded 2.5 percent last quarter, up from an initial estimate of 1.7 percent, the Commerce Department said Aug. 29.

Bullion tumbled a record 23 percent in the three months ended June 30 amid mounting speculation that the central bank will reduce its asset purchases.

“The increase in gold has been because of some temporary factors,” said Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees about $112 billion of assets. “As I look forward, some of these things start to unwind. With better economic news on the horizon, it means taper terror is back in the gold market.”

Commodity Funds

Money managers withdrew $361 million from gold funds in the week ended Aug. 28, according to Cambridge, Massachusetts-based EPFR Global, which tracks money flows. Commodity funds had outflows of $17 million.

Commodity assets under management rose in July by about $1 billion to $348 billion, the first increase since early 2013, Barclays Plc said in a report Aug. 27. Price gains made up for a decline of $3.1 billion in investments, with precious metals making up the majority of the withdrawals, the bank said.

Net-long positions in crude advanced 4.9 percent to 317,523 contracts, CFTC data show. West Texas Intermediate reached a two-year high on Aug. 28 amid concern that escalating conflict in the Middle East may disrupt supplies. Prices retreated 2.2 percent over the next two days as U.K. lawmakers rejected a proposal by Prime Minister David Cameron seeking a military response to Syria.

Editor's Note: Get Tom Luongo's Gold Stock Adviser — Click Here Now!

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