Nov 7 (Bloomberg)--Gold prices, up 4.4 percent so far this year, may rise on speculation the Federal Reserve will fail to slow inflation, boosting the appeal of bullion as a hedge, a Bloomberg survey shows.
Seventeen of 28 traders, investors and analysts surveyed from Sydney to Chicago Nov. 3 and Nov. 4 advised buying gold this week. Eight recommended selling the metal and three were neutral. Gold fell 3.6 percent last week, the biggest drop since January, to $457.90 an ounce on the Comex division of the New York Mercantile Exchange.
The Fed raised its benchmark interest rate 12 times in the past year in an attempt to slow U.S. consumer prices that are rising at an annual rate of 5.1 percent, the most since 1990. Gold jumped to a 17-year high of $483.10 on Oct. 12 as energy costs surged to a record.
"The Fed is committed to gradualism and inflation is likely to rise faster than interest rates,'' said Stephen Leeb, who oversees $140 million as president of Leeb Capital Management in New York. Leeb Capital holds 4 percent of its assets in gold stocks. "It's a bull market for gold,'' he said.
Gold for December delivery fell $16.90 last week to a seven- week low on the Comex, surprising the majority of analysts surveyed Oct. 27 and Oct. 28, who expected a gain. Bloomberg's survey has forecast the direction of prices accurately in 45 of 80 weeks, or 56 percent of the time.
Inflation Hedge
The precious metal is heading for a fifth consecutive year of gains and is a better gauge of future inflation than crude oil or the consumer-price index, Boston-based H. C. Wainwright & Co. said in a Nov. 4 research reported commissioned by the World Gold Council.
Some investors buy gold in times of inflation to preserve purchasing power. Gold reached a 16-year high of $458.70 an ounce on Dec. 2 as U.S. consumer prices rose 3.3 percent in 2004, the most in four years. Gold surged to $873 an ounce in 1980 when consumer prices jumped 12.5 percent.
Consumers responding to the University of Michigan confidence survey Oct. 14 said they expect prices to rise 4.6 percent over the next year, the highest reading since 1990.
"The real definition of inflation is the amount of money supply out there and that number is increasing,'' Glamis Gold Ltd. Chief Executive Kevin McArthur said in an interview on Nov. 3 from Reno, Nevada. Money supply is the total amount of money in the economy.
McArthur, who runs the fifth-largest gold producer in North America by market value, expects gold to reach $500 over the next six months and he has boosted exploration spending to find and develop new reserves. |
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Exploration Spending
Glamis is running the largest exploration program in the company's history with 17 drill rigs focused mostly on two projects in Guatemala. Production in the third quarter surged 78 percent to 90,535 ounces from a year ago after the company opened mines in Mexico and Guatemala and expanded one in Nevada.
Gold sold in dollars may get a boost as the U.S. currency drops against other currencies, McArthur said. The U.S. trade deficit in September may widen to match February's record of $61 billion, according to the median of 48 forecasts in a Bloomberg survey. The Commerce Department will release its report on Nov. 10.
"The dollar in the long term will weaken against other currencies,'' boosting the value of gold, McArthur said. "There are deficits. You can't have guns and butter.''
U.S. consumer prices in September rose the most since 1980 as a surge in crude-oil and gasoline prices filtered through the economy, the Labor Department said Oct. 14. Prices paid by consumers jumped 1.2 percent, the biggest increase since March 1980.
Behind the Curve
"The Fed is behind the inflation curve,'' said Thomas Winmill, who invests in gold stocks for the $260 million Midas Fund in New York. Ben Bernanke, nominated by U.S. President George W. Bush to succeed Fed Chairman Alan Greenspan, is "going to be stimulating the economy and let the inflation creep higher,'' which will be positive for gold, he said.
Gold also may rise after speculators pared 26 percent of their metal holdings from a record high on Oct. 11, Midas' Winmill said. Hedge funds and other largest speculators held net- long positions, or bets prices will rise, totaling 130,568 New York gold contracts on Nov. 1, down for a third straight week, the U.S. Commodity Futures Trading Commission said Nov. 4.
"There has been a little bit of long liquidation,'' Winmill said. "Maybe some of the froth has been taken out.''
During gold's rally to a 17-year high, net-long positions as of Oct. 11 had surged to 177,410 contracts, the highest since at least 1983, compared with 65,569 contracts on Aug. 2.
A futures contract is an obligation to sell or buy a commodity at a set price by a specific date.
Bloomberg's gold survey asked if prices are more likely to fall, rise or be little changed in the coming week. The
results were:
To contact the reporter on this story: Choy Leng Yeong in Seattle at clyeong@bloomberg.net
Last Updated: November 6, 2005 16:14 EST |
Prospectus
