Gold bars are stacked in the safe deposit boxes room of the Pro Aurum gold house in Munich March 3, 2014. Speculators pared bets on rising gold prices for a seventh consecutive week, the longest retreat since 2010, as futures erased this year’s gains.MICHAEL DALDER/Reuters
Speculators pared bets on rising gold prices for a seventh consecutive week, the longest retreat since 2010, as futures erased this year's gains.
The net-long position in New York futures and options contracted as hedge funds accumulated the most bets on further declines since the U.S. government began collecting data in 2006. The most-traded Comex gold option on Oct. 3 was for the right to sell December futures at $1,100 (U.S.) an ounce, or almost 8 per cent below where prices ended the day.
Some investors are shunning gold as the U.S. economy quickens and the U.S. dollar trades at the highest in four years, spurring expectations the Federal Reserve will raise interest rates and constrict demand for bullion as a hedge against inflation. Goldman Sachs Group Inc., Société Générale SA and HSBC Securities (USA) say they expect lower prices.
"People have been falling out of love with gold," Bill Schultz, who oversees $1.2-billion (U.S.) as chief investment officer at McQueen Ball & Associates in Bethlehem, Penn., said Oct. 2. "The better U.S. economy and the stronger dollar continue to lure people away."
Futures fell 1.9 per cent last week to $1,192.90 an ounce on the Comex in New York, the fifth decline and the longest slide since January, 2013. Prices are 0.1 per cent lower for the year. The Bloomberg Commodity Index of 22 raw materials dropped 1 per cent last week and the MSCI All-Country World Index of equities 2 per cent, while the Bloomberg Dollar Spot Index rose 1.1 per cent.
The net-long position in gold declined 15 per cent to 37,743 futures and options in the week ended Sept. 30, U.S. Commodity Futures Trading Commission data show. The holdings are down 72 per cent in seven weeks. Short positions increased 4.5 per cent to an all-time high of 81,262 contracts. The bearish holdings doubled since the last week of August.
More than $4-billion has been erased from the value of exchange-traded products backed by gold this year. Investors sold 9.01 tonnes of metal held through ETPs last week, dragging holdings to a five-year low of 1,679.46 tonnes. The U.S. jobless rate declined to a six-year low of 5.9 per cent in September and employers added more workers than projected, the government said last week.
On Oct. 2, Goldman reiterated its forecast for prices to reach $1,050 in 12 months, and HSBC cut its outlook for 2015 to $1,175 from $1,310. Recent gains for the U.S. economy mean the market will "start pricing a much faster pace of" increases for U.S. interest rates, SocGen said in a report e-mailed the next day, saying the metal will trade "well below $1,200."
Lower prices may help to spur physical demand for the metal. Sales of gold coins by the U.S. Mint reached 58,000 ounces last month, the most since January, and more than double August's total. Purchases at Australia's Perth Mint climbed 89 per cent in September to the highest in almost a year.
"I don't see gold as being particularly negative," Michael Cuggino, who manages about $8.5-billion of assets at Permanent Portfolio Family of Funds Inc. in San Francisco, said Oct. 2. "We're long-term holders because we believe in it as a component in maintaining and building long-term wealth. It's in the lower end of a trading range, and in my view, it's a volatile asset. I am not overly concerned about it."
Bullion climbed 70 per cent from December, 2008, to June, 2011, as the Fed bought debt and held borrowing costs near zero per cent, boosting inflation concerns. In 2013, bullion fell 28 per cent to halt a 12-year rally as some investors lost faith in the metal as a store of value.
Prices fell 8.4 per cent in three months ended Sept. 30, the first quarterly loss this year. The Fed on Sept. 17 reduced monthly bond purchases to $15-billion, on track to announce an end to the program this month. Inflation expectations, measured by the five-year Treasury break-even rate, last week reached the lowest since June 2013.