Gold Bulls Expand as Billionaire Paulson Buys Metal: Commodities

Photographer: Chris Ratcliffe/Bloomberg

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Photographer: Chris Ratcliffe/Bloomberg

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Gold traders are the most bullish in six weeks as investors boosted their bullion holdings to a record on concern that economic growth is slowing and after billionaires John Paulson and George Soros bought more metal.

Fourteen of 26 analysts surveyed by Bloomberg expect prices to rise next week and six were bearish. A further six were neutral, making the proportion of bulls the highest since July 6. Paulson raised his stake in the SPDR Gold Trust, the biggest gold-backed exchange-traded product, by 26 percent in the second quarter and Soros more than doubled his holding, U.S. Securities and Exchange Commission filings showed Aug. 14. Global holdings reached a record on Aug. 10, data compiled by Bloomberg show.

The euro-area contracted in the second quarter after the worsening debt crisis forced at least six nations into recessions, European Union data showed Aug. 14. Gold bar and coin purchases jumped 15 percent in Europe in the period, the World Gold Council said yesterday. U.S. growth cooled in the three months through June and China’s slowdown may extend into a seventh quarter after export growth collapsed in July and industrial production and lending missed economists’ forecasts.

“The monetary affairs of the world probably play the most important role for gold prices going forward,” said Thorsten Polleit, chief economist at Degussa Goldhandel GmbH, a precious metal trading and investment company in Frankfurt. “The slowing economy will boost calls for easier monetary policy. This is adding a further boost to gold.”

Gold Prices

Gold rose 3.3 percent to $1,618 an ounce on the Comex in New York this year, extending 11 consecutive annual gains. That compares with a 3.5 percent gain in the Standard & Poor’s GSCI gauge of 24 commodities and an 8.6 percent advance in the MSCI All-Country World Index (MXWD) of equities. Treasuries returned 1.1 percent, a Bank of America Corp. index shows.

European gold bar and coin demand rose to 77.6 metric tons in the latest quarter and jewelry demand should pick up in Asia during the second half on seasonal wedding and festival purchases, the London-based gold council said. Investors bought about $1.1 billion of gold through ETPs this month and held a record 2,417.3 tons on Aug. 10, data show.

Paulson & Co., which owns the biggest stake in the SPDR Gold Trust, increased its holdings to 21.8 million shares in the three months through June. The New York-based $21 billion hedge fund firm had more than 44 percent of its U.S. traded equities tied to bullion, or 16 percent excluding the SPDR Gold Trust product, the filing showed. Paulson uses his stake in the product to back shares that are denominated in gold.

Soros Fund Management LLC raised its stake to 884,400 shares. Spokesmen for both investors declined to comment earlier this week.

Central Bank Action

Slowing growth may spur more action from central banks. Chinese state media reported Aug. 15 that Premier Wen Jiabao saw room to adjust monetary policy, European Central Bank President Mario Draghi promised last month to do whatever it takes to preserve the euro and the Federal Reserve pledged on Aug. 1 to ease policy further if necessary. Fed Chairman Ben S. Bernanke may talk about monetary options at a conference in Jackson Hole, Wyoming, at the end of the month.

Hedge funds and other money managers mirrored the 9.5 percent drop in prices since the end of February, slashing bets on a rally by 57 percent in the period, U.S. Commodity Futures Trading Commission data show. The net-long position fell 11 percent in the week to Aug. 7 and is near the lowest since 2008.

Coin Sales

There are signs of slowing physical demand, with sales of American Eagle gold coins by the U.S. Mint dropping 49 percent to 30,500 ounces last month, the lowest since April. The mint sold 9,000 ounces so far in August, data on its website show.

Gold imports by India, last year’s biggest buyer, slid 56 percent from a year earlier to 131 tons in the second quarter, the gold council said. Below-average monsoon rain this year has stoked concerns about rural jewelry demand, given people’s dependence on farming and the potential impact of a poor harvest on income levels, the industry group said. Local prices reached a record in June, data compiled by Bloomberg show.

The metal’s average of $1,642 an ounce so far this year would be the most ever if sustained through Dec. 31, even after prices slumped 16 percent from the September record. Some of the demand is coming from central banks and the gold council predicts they may add close to 500 tons to reserves this year.

In other commodities, 10 of 26 traders and analysts surveyed by Bloomberg expect copper to fall next week and eight predicted a gain. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, declined 0.9 percent to $7,531 a ton this year.

Sugar Survey

Six of 12 people surveyed said raw sugar will fall next week and four expect an increase. The commodity slid 13 percent to 20.38 cents a pound since the start of January on ICE Futures U.S. in New York.

Thirteen of 27 people surveyed anticipate higher corn prices next week and 10 were bearish, while 15 of 28 said soybeans will increase and 10 predicted declines. Corn jumped 25 percent to $8.1075 a bushel in Chicago this year and reached a record $8.49 on Aug. 10 as the worst U.S. drought in a half- century damaged crops. Soybeans set an all-time high July 23 and are up 36 percent this year at $16.3875 a bushel.

The S&P GSCI gauge of raw materials rallied 19 percent since June 21, climbing to within 1 percentage point of a so- called bull market. Commodities will return 27 percent in 12 months, Goldman Sachs Group Inc. said in a July 16 report.

“Fiscal and/or monetary stimulus most likely is needed to make commodities advance further,” said Filip Petersson, an analyst at SEB AB in Stockholm. “Agricultural prices however are likely to have reached a peak unless additional severe weather disturbances hit. Demand destruction and rising ambitions for next year’s crop are likely to hold back prices.”

Gold survey results: Bullish: 14 Bearish: 6 Hold: 6
Copper survey results: Bullish: 8 Bearish: 10 Hold: 8
Corn survey results: Bullish: 13 Bearish: 10 Hold: 4
Soybean survey results: Bullish: 15 Bearish: 10 Hold: 3
Raw sugar survey results: Bullish: 4 Bearish: 6 Hold: 2
White sugar survey results: Bullish: 4 Bearish: 5 Hold: 3
White sugar premium results: Widen: 2 Narrow: 1 Neutral: 8

To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net

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