(Bloomberg News) Sales of gold coins are on track for the best month in a year amid the worst commodities rout since 2008, a sign that bullion's longest bull market in nine decades has further to run, if history is a guide.
The U.S. Mint sold 85,000 ounces of American Eagle coins since May 1 as the Standard & Poor's GSCI Index of 24 raw materials fell 9.9%. The last time sales reached that level, bullion rose 21% in the next year. Gold will advance 17% to a record $1,750 an ounce by Dec. 31 and keep gaining in 2012, the median estimate in a Bloomberg survey of 31 analysts, traders and investors shows.
Investors in exchange-traded products backed by the metal accumulated $98 billion of gold as prices rose 74% since U.S. borrowing costs fell to near zero in December 2008 and the Dollar Index dropped 6.2%. With the gauge, a measure against six currencies, forecast to weaken through 2012 and the Federal Reserve expected to keep rates on hold through the fourth quarter, the rally may not reverse any time soon.
"There is no sign that gold has peaked," said Martin Murenbeeld, the chief economist at Toronto-based DundeeWealth Inc., which manages about $85 billion in mutual funds and brokerage accounts. "We're going to find that the U.S. economy is not very strong," he said. "A low interest-rate environment will remain for possibly all of 2012. The dollar goes down."
Gold Rally
Bullion rose almost sixfold from a two-decade low in 1999 while the Dollar Index fell 35% since the end of 2001. The gauge will drop 2.9% more this year and another 3.7% in 2012, the median of analysts' estimates compiled by Bloomberg shows. The two have an inverse correlation of 0.78, with a figure of -1 meaning they move in opposite directions all the time, making gold a hedge against a weaker dollar.
Gold rallied every year since 2001, attracting billionaire investors George Soros and John Paulson, and reached a record $1,577.57 in London on May 2. The metal rose 0.1% to $1,496.57 today.
The S&P GSCI Total Return Index of commodities rose 25% since the start of 2001, the S&P 500 Index made about 25% with reinvested dividends and Treasuries returned 72%, a Bank of America Merrill Lynch index shows.
While the 2,041 metric tons accumulated through metal- backed ETPs helped drive prices higher, it also represents a threat. Holdings dropped 3.3% in the first quarter, according to data released by the ETP providers. The details of which investors changed their holdings in that period are being revealed in Securities and Exchange Commission filings.
Fund Holdings