Gold price rally defies bearish forecasts

Precious metal has rebounded as concerns over inflation and unrest send investors to gold haven

PUBLISHED : Wednesday, 09 July, 2014, 5:19am
UPDATED : Wednesday, 09 July, 2014, 1:53pm

Gold is precious again. After investors sent bullion tumbling last year by the most in three decades and kept dumping the metal earlier this year, demand is now up and prices are defying bearish forecasts.

Money managers increased net long positions for a fourth consecutive week at the end of last month and holdings in exchange-traded products are climbing at the fastest pace since 2012.

"Gold's performance has proven the bears wrong so far this year," said John Kinsey at Caldwell Securities in Toronto. "We look for further strength through the balance of the year."

While the latest government data points to an improved US economy and Goldman Sachs and Societe Generale predict prices will retreat by the end of the year, inflation concerns and pockets of unrest are sending investors into gold as a haven.

Performance [of gold] has proven the bears wrong so far this year
John Kinsey, Caldwell Securities

Prices extended gains after the Federal Reserve signalled earlier this month it will keep interest rates near record lows and violence spread in Iraq and Ukraine.

The bulls are being rewarded. The value of gold funds rose US$4.9 billion this year as prices rallied 9.5 per cent. The metal has rebounded from last year's 28 per cent decline, triggered by muted inflation and investors shunning the metal in favour of equities.

Futures slid 0.3 per cent to US$1,317 an ounce on Monday after five weeks of gains, the longest streak since January.

The net long position in gold rose 20 per cent to 136,929 futures and options contracts in the week to July 1, according to data published by the US Commodity Futures Trading Commission last week. That is the highest since March 18 and up fourfold since the start of the year. Short holdings betting on a drop retreated 29 per cent, a fourth straight decline.

Assets in bullion-backed exchange-traded products increased 12.6 tonnes last week, the most since November 2012.

Holdings are rebounding after six straight quarterly declines that began before gold entered a bear market in April last year.

Gold sales from Australia's Perth Mint climbed to 39,405 ounces last month, a four-month high. Sales of American Eagle gold coins by the US Mint totalled 48,500 ounces last month, up 37 per cent from May and the most since January.

For the first six months of the year, sales totalled 266,000 ounces, the lowest first-half figure since 2008.