Gold is becoming a valuable commodity again, after investors sent bullion tumbling last year by the most in three decades which they kept dumping the metal recently. Demand is high and prices are defying bearish forecasts. Money managers are likewise increasing net-long positions for the 4th consecutive week and holdings in exchange-traded products are surging at the fastest pace since last year.
Gold’s performance has indeed proved that bears were in the wrong side this year and that the search for additional strength through a balance is elusive.
While the recent government data pointed to a recovering U.S. economy, prices are speculated to retreat by the end of the year and inflation concerns along with pockets of unrest are sending investors into gold as a safe haven. Prices were extended following the Fed’s reservations and intentions that it will keep interest rates near record lows and violence spread in the Ukraine and Iraq.
The bulls are being remunerated with the value of the gold funds rising by U.S. $4.6 billion this year as prices rallied 9.5 %. The metal was able to rebound from last year’s 28 % decline which was sparked by muted inflation and as investors shunned the metal in favour of equities.
Futures plummeted 0.1 % to U.S. $1,316.2 per ounce on the Comex in New York last week after five consecutive weekly gains which was the longest streak since the first quarter.
The net-long position in gold went up 20 % to a total of 136,929 futures and options contracts in the past week which is considered as the highest since the first quarter and was regarded as further up fourfold since the beginning of the year. Short holdings betting on a drop retracted 29 % which totalled as the 4th straight decline.
Assets in bullion-supported ETP increased approximately 13 metric tons last week. Holdings are rebounding following a six straight quarterly decline that started before gold entered a bear market last year.
The U.S. central bank was able to keep its benchmark lending rate to 0 % for the past six years after five consecutive cuts of U.S. $10 billion since last year. There is no further need to change the present monetary policy which the present rate of the bullion jumped 70 % from 2008 to 2011 as the Fed bought debt and held on to borrowing costs at an all-time low respectively.
Gold sales from Australia surged to 39,405 ounces in June following a four-month consecutive high. Sales of American Eagle gold coins by the U.S. Mint amounted to 48,500 ounces in June totaling 37 % from May and the most since the first quarter. For the first semester of the fiscal year, the sales amounted to 266,000 ounces which was the lowest recorded level since 2008.
This year’s recent rally will reverse as the global economic growth is gaining momentum. Bullion is predicted to retreat U.S.$1,150 by the end of this year.
Views by Goldman
Prices are expected to drop U.S.$1,050 in 12 months, with Goldman analysts restating in the June report indicating an unchanged in their outlook at the beginning of the year. The U.S. was able to add 288,000 in June which brought the employment rate t0 6.1 %, which was the lowest since September nearly 6 years ago. Moreover, gold futures dropped 0.8 %, mostly since May of this year.
Precious metals were on the rise because of the short-term concerns regarding inflation as well as the geopolitical turmoil in many parts of the world. With the recuperation of the global economy greatly improving, gold prices are expected to reverse and move lower in the coming months.
Combined net-wagers across the eighteen U.S. traded commodities plummeted 2.3 % to 1.29 million contracts as of July 1. Bets on rising oil prices went down 4.4 % to 330,148 contracts. West Texas Intermediate dropped for 7 consecutive sessions which was considered the longest slide since December 2009.
A gauge of net-long position across 11 agricultural products declined 7.4 % to 597,480 contracts which was the eight drop in two months.
Cotton fields in Texas, the largest U.S. grower are recuperating as drought conditions recede. The recent rains will help inventories to a 6-year high before the 2015 harvest culminates. Investors went to the extent of cutting their bullish wagers 34 % to 16,346 which was the lowest they did this year.
The corn net-long holding fell for the 8th straight week and prices recently entered a bear market in Chicago on the outlook for ample global supplies. Output in the U.S. is expected to jump 2.8 % to 14.314 billion bushels.
Furthermore, it’s truly difficult to comprehend the total record acres, yields and how prices can go up without warning. It’s really a matter of weather conditions which usually predicts the bountiful or sparse harvest.