Gold may rise, snapping a two-week slide, on speculation Russia and Middle Eastern crude-oil producers may shift reserves away from the dollar, boosting the appeal of the precious metal as an alternative investment.
Seventeen of the 34 traders, investors and analysts surveyed by Bloomberg News from Sydney to Chicago on December 14 and December 15 advised buying gold, which fell 1.9% last week to $619.30 an ounce in New York. Eight respondents said to sell, and nine were neutral. The central bank of Russia, the world's second-biggest oil producer, increased gold holdings by 2.2% to 394.1 metric tons in the Q3, the London-based World Gold Council said last week.
Gold rallied 7.6% in November, the most since April, as the dollar slumped to a 20-month low against the euro. „Investors will start anticipating Arab oil producers are not happy with recent declines in the dollar,” said Stephen Leeb, president of Leeb Capital Management, which oversees $152 million in New York. „If the dollar is seen weaker from a longer-term perspective, that has to be positive for gold, one of the primary alternatives to the dollar.” Gold may rise to $1,000 an ounce over the next 18 months, driven by a falling dollar and rising energy costs, Leeb said. Leeb Capital has 4% in gold equities.
Gold for immediate delivery rose $2.78 to $618.13 an ounce at 11:34 a.m. in Mumbai. Gold futures on the Comex division of the New York Mercantile Exchange fell $11.90 an ounce last week, after sliding 3% the previous week. The decline surprised the majority of analysts who predicted a gain when surveyed on December 7 and December 8. Respondents have forecast prices accurately in 83 of 138 weeks, or 60% of the time.
Sales of gold by central banks fell 31% in the third quarter to 59 metric tons from a year ago, according to the producer-funded World Gold Council. A group of European central banks this year sold 395.8 tons, below the 500-ton limit under a special accord, the Council said. „Gold is just pausing in a secular bull market,” said Michael Metz, chief investment strategist at Oppenheimer & Co. in New York, which has about $10 billion in assets.
„The Western central banks did not sell their quota. It's just begun to turn up in central banks like Russia.” Belarus, Ukraine, Greece and South Africa are among countries that have increased gold reserves this year, according to the World Gold Council. The dollar has fallen 7.8% against a basket of six major world currencies this year, and gold has climbed 19%.
„Dollar weakness, based on major central banks reducing their dollar exposure where possible, will continue to drive gold up,” said Stuart Flerlage, managing principal at NuWave Investment Corp. in New York. „This trend will only accelerate as Middle Eastern reserves are switched out of dollar-denominated assets.” The central bank of United Arab Emirates, the third-biggest OPEC exporter behind Saudi Arabia and Iran, said in November its „medium- to long-term objective” was to boost euro and gold holdings to diversify out of the dollar.
Gold also may get a boost from speculation that higher energy costs will increase the appeal of the metal as a hedge against inflation. Some investors buy gold to preserve purchasing power in times of accelerating inflation. Gold futures surged to $873 in 1980, when a jump in the cost of oil led to a 13% annual rise in consumer prices. Crude oil rose to a two-week high of $63.43 a barrel on December 15 after the Organization of Petroleum Exporting Countries agreed to production cuts.
„Crude prices have moved up, and that will support gold,” said Siddharth V. Kothari, an analyst at Sunidhi Commodities Pvt. Ltd. in Mumbai. „There is also more non-commercial and institutional buying emerging. Any drop in prices to $617 and $620 should be taken as a good buying opportunity.” Gold may rebound to $650 this week because „weakness in the dollar will persist in the long term,” he said. Higher oil prices are „generating background support” for gold, said James Moore, an analyst in Kettering, England, for TheBullionDesk.com.
Oil over $60 a barrel is „likely to generate further anti-inflationary hedging,” he said. Hedge-fund managers and other large speculators reduced their net-long position in Comex gold futures in the week ended December 12, data from the Washington-based Commodity Futures Trading Commission show. Speculative long positions, or bets that prices will rise, outnumbered short positions by 81,829 contracts, down 2.2% from a week earlier. (Bloomberg)