BackPrecious metals coveted once more as Mario Draghi acts
The net-long position in gold climbed 27% to 145,732 futures and options in the week ended 20 January
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New York: Investors’ desire for precious metals is deepening after Mario Draghi’s $1.3 trillion pledge drove gold to a five-month high and silver to the brink of a bull market.
Their buying helped boost the value of exchange-traded products backed by gold and silver by $8.94 billion this month, the most since September 2012, data compiled by Bloomberg show. Hedge funds and other speculators in futures are the most bullish on gold in two years and have bet more on silver in all but two weeks since the start of November.
At a time when the price of almost every other commodity is sinking, silver and gold are having their best start to a year in more than three decades. The European Central Bank (ECB) president’s stimulus sent the euro to an 11-year low against the dollar, pushed government bond yields lower and raised the appeal of alternatives to currencies that are being revalued.
“Silver is tied to gold, and they move with trust," David Rosenberg, the Toronto-based chief economist at Gluskin Sheff and Associates, which oversees C$8 billion ($6.4 billion), said 22 January. “There’s an increasing number of global investors who are starting to lose trust in the world’s central banks."
The net-long position in gold climbed 27% to 145,732 futures and options in the week ended 20 January, according to US Commodity Futures Trading Commission data. The same measure for silver reached the highest since July.
Price gains
Gold rose 1.2% to $1,292.60 an ounce on the Comex in New York last week, after touching the highest since August. Silver jumped 3.1% to $18.30 an ounce. A settlement at $18.496 would leave the metal up 20% from the closing low in November, meeting the common definition of a bull market.
Silver’s 18% advance this year in futures is almost twice the gain in gold. Even so, gold is still trading at about 70 times the price of silver, compared with an average of 58 in the past decade. Silver for March delivery rose 0.4% $18.375 by 8:40 am in Singapore on Monday.
Evidence of demand in the physical market is also apparent. China’s silver imports climbed in December to the highest since February, customs data showed last week. The US Mint sold a record 44 million ounces coins made from the metal in 2014.
Goldman outlook
Goldman Sachs Group Inc. says low inflation and higher US interest rates will drag down gold prices later in 2015. The bank forecast an average of $1,089 next year on 23 January, from a previous estimate of $1,200. Bullion dropped 29% in the previous two years, and silver plunged 48% as the American economy improved.
Weakening global growth will hurt industrial demand for silver, used in solar panels and electronics, according to Jessica Fung, a commodities analyst at BMO Capital Markets in Toronto. The International Monetary Fund last week made the steepest cut to its global growth outlook in three years.
“Even though we forecast a little bit of growth, it is not strong enough to impact the silver price at this point, because we also have growth on the supply side as well," Fung said by phone 21 January. “That’s keeping the physical market in check."
Combined net-wagers across 18 US traded commodities fell 1.2% to 760,124 contracts, government data show. Bets on higher prices for West Texas Intermediate declined 3.3% to 216,704 contracts. Prices slumped 6.4% last week, taking the drop from last year’s high in June to 58%.
Cocoa wagers
A measure of net-long positions across 11 agricultural products fell 8.6% to 415,186 contracts.
Investors increased their bets on a cocoa rally before prices capped the longest rout in more than two years. The net- position rose 1.3% to 51,769 contracts. Long holdings slid 2.7%, while short wagers dropped 14%, indicating that some bearish speculators locked in profits as prices fell.
Cocoa futures are down about 19% since touching a three-year high in September after an outbreak of Ebola didn’t hamper shipments from West Africa, which produces 70% of global supply. Bean grindings fell in the fourth quarter in Asia, Europe and North America, signalling waning demand.
“There was probably some inventory building ahead of Ebola concerns, and that’s being worked down," Walter “Bucky" Hellwig, who helps manage $17 billion at BB&T Wealth Management in Birmingham, Alabama, said by phone 22 January Prices are “continuing to reflect the Ebola premium coming out, better supply conditions and, perhaps, a decline in chocolate demand." Bloomberg
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