Gold traders are divided in their outlook for prices on signs the rush for coins and jewelry that followed the start of the bear market last month is slowing, at a time when hedge funds are the least bullish in five years.
Fifteen analysts surveyed by Bloomberg expect gold to rise next week while 13 are bearish and five neutral. Premiums paid by jewelers in India and Hong Kong to secure metal are tumbling and sales of coins by the U.S. Mint in May are about one-third of what they were in April. Investors sold more than 123 metric tons held in exchange-traded products this month, valued at about $5.6 billion, data compiled by Bloomberg show.
The surge in physical buying after gold fell to a two-year low on April 16 helped boost prices by almost 13 percent in two weeks. The rebound is now reversing and analysts surveyed by Bloomberg anticipate the first annual retreat since 2000. The longest bull market in nine decades is poised to end as some investors lose faith in bullion as a store of value at a time when equities are gaining.
“We’d have to see another big move down to re-spark a surge in retail buying,” said David Wilson, a London-based commodities analyst at Citigroup Inc. “The relatively big downside moves we had in April definitely spurred retail buying, but once that buying is done at a certain price level, it starts to peter out.”
Record Demand
The surge in physical buying probably will drive Indian demand to a quarterly record as imports reach 300 tons to 400 tons in the three months through June, the World Gold Council estimates. India is the biggest gold consumer. In Australia, buyers were waiting in lines half a kilometer (0.3 mile) long to get minted coins and jewelry shops in India and China ran out of gold in a single day, according to the council.
Gold demand in China, the second largest consumer, may slow in the second half of this year after surging in April, said Zhang Bingnan, secretary-general of the China Gold Association.
The U.S. Mint sold 61,500 ounces of gold coins so far this month, from 209,500 ounces in April, data on its website show. Demand was so great last month that it suspended sales of the smallest coins. The mint resumed taking orders on May 28. The one-ounce American Eagle gold coin is selling for $1,710 an ounce, according to the Mint website. That’s 21 percent higher than the price of gold.
Hedge Funds
Hedge funds and other speculators cut bets on a rally by 9 percent to 35,686 futures and options by May 21, the least since July 2007, U.S. Commodity Futures Trading Commission data show. Holdings of short contracts rose 6.7 percent to a record 79,416.
Assets in ETPs tracked by Bloomberg dropped 18 percent to 2,152.7 tons this year, the lowest since June 2011. Combined assets are valued at $98 billion, from a peak of $147.7 billion in October. Holdings in the SPDR Gold Trust, the biggest, rose on May 29 for the first time in about three weeks.