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Gold Bulls Split With Buffett as Traders Say Sell: Commodities

*from www.bloomberg.com, May 6, 2013 (To view original article click here.)

Take Away #1: Hedge funds increased bets on a gold rally by the most in three weeks as central banks signaled no end to economic stimulus, driving prices higher just as analysts and traders turned the most bearish in three years.

Key Facts and Figures:

  • The funds and other large speculators raised their net-long position by 19% to 54,762 futures and options as of April 30.
  • Holdings of so-called short contracts retreated 9.2%, the most since March 19.
  • Net-bullish wagers across 18 U.S.-traded raw materials jumped 28% to 550,192, the biggest increase in seven weeks, led by gains in soybeans, cocoa, and crude oil.
  • Gold rallied 4.9% in the past two weeks after entering a bear market April 12.
  • The Federal Reserve raised the prospect of increasing its monthly bond buying on May 1.
  • The European Central Bank cut borrowing costs to a record low the next day.
  • Billionaire investor Warren Buffett said the metal has no appeal even after the slump.
  • A weekly Bloomberg survey of analysts and traders was the most bearish since February 2010.
  • It’s reasonable to say that the currency debasement easing measures will support gold,” said Alan Gayle of RidgeWorth Capital Management.
  • “The bulls still have to prove a lot. There is skepticism surrounding gold. We have to watch to see if prices have found a near-term bottom,” Gayle said.

Take Away #2: Gold prices rebounded 11% since reaching a two-year low on April 16.

Key Facts and Figures:

  • Futures climbed 0.7% to $1,464.20 an ounce on the Comex last week.
  • The Standard & Poor’s GSCI Spot Index of 24 commodities rose 1.4% last week, and the MSCI All-Country World of equities gained 1.7%.
  • The dollar slid 0.5% against a basket of six major peers, and a Bank of America Corp. Index shows Treasuries fell 0.4%.
  • Gold was 0.2% higher at $1,466.60 today.
  • The Fed said at the end of a two-day policy meeting last week it’s “prepared to increase of reduce the pace of its purchases” of $85 billion in debt a month.
  • Gold surged 66% since the end of 2008 as the Fed was joined by central banks in Europe and Japan in printing unprecedented amounts of money, almost doubling sovereign debt to more than $23 trillion.

Take Away #3: The flood of cash spurred investors including billionaire John Paulson to hold the metal as a hedge against inflation.

Key Facts and Figures:

  • Gold remains the best store of value in an uncertain economy, the $21.8 billion hedge-fund, Elliott Management Corp. told clients.
  • This even as Elliot Management lost money on its position this year.
  • Threadneedle Investments, a London-based fund with $131 billion in assets, remains bullish on gold as central banks stick with printing money to weaken their currencies and revive growth.
  • Some investors’ faith in the metal has waned as inflation fails to accelerate even as central banks add liquidity.
  • Global holdings of the metal through exchange-traded funds slumped to the lowest since October 2011 after touching an all-time high in December.

Take Away #4: Warren Buffett, the third richest person I the Bloomberg Billionaires Index, said last year in his annual letter to shareholders that investors should avoid gold.

Key Facts and Figures:

  • “If it went to $800, I wouldn’t be a buyer,” Buffett, the chairman and CEO of Berkshire Hathaway Inc. told reporters on May 2.
  • “It just sits there, and you hope somebody pays more for it,” said Buffett.

Take Away #5: Money managers withdrew $1.67 billion from commodity funds in the week ended May 1, said Cameron Brandt, director of research for EPFR Global, which tracks money flows.

Key Facts and Figures:

  • Outflows from gold and precious-metals funds totaled $1.79 billion, said Brandt.
  • Gold prices had the biggest two-day drop in more than three decades last month.
  • A majority of the 38 analysts surveyed by Bloomberg said the metal’s 12-year winning streak is over.
  • While the hedge fund’s short holdings declined in the week through April 30, they are still more than triple the average since 2006, when the data begins.
  • Goldman Sachs Group Inc. said April 23 the precious metal may slide to $1,390 in 12 months, and Deutsche Bank AG predicts a drop to as low as $1,050.
  • “There are no inflationary worries, and gold is responding to the global deflationary pressure,” said Jim Russell of U.S. Bank Wealth Management.
  • “There are no catalysts for gold to rise at the moment,” said Russell.

Take Away #6: Last month’s declines attracted retail buyers and sales of gold coins rose.

Key Facts and Figures:

  • Sales of gold coins by the U.S. Mint in April rose to the highest since December 2009.
  • The U.K. Mint said it is increasing output after demand more than tripled.
  • Australia’s Perth mint has stayed open through the weekend to meet orders that reached a five-year high.
  • Physical flows into India, the biggest consumer, climbed to at least five times the average of the past 12 months, UBS AG said May 3.
  • Central banks are still adding to gold reserves that are now at an eight-year high, according to International Monetary Fund data.
  • Banks bought 534.6 metric tons last year, the most since 1964, according to the London-based World Gold Council.
  • Investors raised their bets on a rally for crude oil by 6.3% to 193,962 contracts.
  • That is the first gain in three weeks, the CFTC data shows.
  • The funds increased platinum holdings by 17% to 22,355, the biggest gain since January.
  • Palladium and silver wagers also increased.

Take Away #7: A measure of speculative positions across 11 agricultural products surged 86% to 197,692 contracts.

Key Facts and Figures:

  • The funds narrowed their bets on a decline in wheat to a net-short position of 5,779 contracts, from 20,870 a week earlier.
  • Bullish corn holdings more than tripled to 45,497.
  • Wheat output in Kansas, the biggest U.S. grower of winter varieties, will fall in 2013 after drought last year was followed by an April freeze.
  • The wheat output in Kansas will fall 18% in 20130 to 313.1 million bushels, surveys from a three-day annual crop tour showed.
  • “Weather conditions could push wheat prices higher, and it could outperform other agriculture commodities,” said Nic Johnson, of Pacific Investment Management Co.
  • “It’s not a one-way direction for gold. While many have changed their minds and gone bearish, we stick to the fact that gold prices will likely go higher,” said Johnson.

*To view original article from www.bloomberg.com click here.

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