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Gold Bulls on Debt Purchases and Record Gold Holdings

December 28, 2012 - Gold traders exhibit more bullish sentiment than in the past four months as lawmakers draw ever closer to the deadline for budget talks and hedge funds have been forced to cut bets on higher prices.

A recent Bloomberg survey reveals that 15 of 19 analysts expect the prices for gold to rise in the next week, with only one being bearish and three being neutral. This is the highest proportion of gold bulls in such a survey since August 24, 2012.

As bullion is headed toward the twelfth annual consecutive gain, the longest running rally in the asset for the past nine decades, central banks from Europe to China continue to pledge more action to spur economic growth. Despite the volatility in the gold market since the reelection of the U.S. President and the ensuing political debate over the fiscal cliff, investors have bought 60 more this year through gold-backed exchange-traded products compared with 2011 and sales to authorized distributors at the U.S. Mint have been breaking records with the American Silver Eagle Coin showing 33,742,500 ounces moving this year, the third best year in the coin’s 27-year history.

On December 12, the Federal Reserve said it would buy $45 billion of Treasury securities a month from January, adding to the $40 billion a month of existing mortgage-debt purchases announced in mid-September. During the first two rounds of monetary easing from December 2008 through June 2011, the Fed bought $2.3 trillion of debt and gold rose 70 percent. The European Central Bank, the Bank of Japan, and China have all announced further activity to bolster their economies.

Despite the lid on a gold rally imposed by the uncertainty of the U.S. fiscal cliff, specifically the tax situation of 2013, which has caused hedge funds to cut wagers on higher gold prices by 43 percent, ETP holdings gained to 274.9 metric tons this year and reached a record 2,632.5 tons as of December 20, 2012, which is equal to almost a year of mine production. The staggering amount of ETP holdings, which begs questions as to the availability of the underlying asset as no physical is delivered in such transactions, reveals another side of the gold market that is not currently shown in the spot price.

 

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Jonathan Monroe

Senior Staff Writer - Gold-Bullion.org

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